Huntsman's Management Presents at DbAccess Global Industrials and Basic Materials Conference (Transcript)

Jun.13.13 | About: Huntsman Corporation (HUN)

Huntsman Corporation (NYSE:HUN)

DbAccess Global Industrials and Basic Materials Conference

June 13, 2013 9:00 am ET

Executives

J. Kimo Esplin - Chief Financial Officer and Executive Vice President

Analysts

David L. Begleiter - Deutsche Bank AG, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Good morning. My name is David Begleiter, Deutsche Bank's U.S. Chemicals Research team. Welcome to Day 2 of Deutsche Bank's Global Industrial and Basic Materials Conference. Very pleased with our first speaker today. This is Kimo Esplin, CFO of Huntsman. Kimo has been with Huntsman for over 20 years, and mainly as CFO. With that, without further ado, Kimo.

J. Kimo Esplin

Good to be with you. Thank you, David. And I understand the format is just a few slides and then some visiting about whatever you'd like. Just a reminder for those of you who are new to the name, Huntsman Corporation is an $11 billion sales company. On an LTM basis, we're about $1.3 billion of EBITDA and really dominated by our Polyurethanes business, it's nearly half of our profits. 5 other -- excuse me, 5 divisions, and we can talk about those in turn here. But generally, we saw a nice 2012 peak EBITDA, at least as you look in the rearview mirror, in terms of history, really driven by our titanium dioxide business. Obviously, it's come off a bunch, and we're seeing our profits in 2013 year-over-year down. But really, TiO2 is down, but all of the other businesses are up year-over-year, in spite of having some turnarounds and some one-time outages that gave us higher profits in 2012. We think that all of our businesses will be up, except for TiO2 year-over-year, when we're done with the year.

Polyurethanes, as I mentioned, is the largest business we have. It's got a great growth track record. And we think that story is well in place and continue to see, in excess of 8%, volumetric growth globally in the industry. You can see in the bottom left-hand corner here, that's really driven by Asia. And again, we saw in the first quarter, double-digit growth rates in our business in Asia, and we continue to see that. Some of the growth we're seeing in North America is driven by housing.

We have a strong composite wood business, oriented strand board that continues to displace things like formaldehyde. And our penetration into the composite wood business is still fairly low. When you include other types of board, medium density board, particleboard and even in oriented strand board, I think we're just a bit over 50% in terms of penetration and continue to see. For environmental reasons, and just from a property standpoint, it's just a better board. We see that substitution going on. And this is a business that has our propylene oxide business in it. And obviously, with low natural gas prices in North America, there is an arbitrage opportunity because it basically sells on a premium unleaded gasoline price, or an octane price, and our inputs there are butane and methanol.

Titanium dioxide is always an interesting topical discussion. The left-hand side of this slide, we've shown before, really, is an attempt to give you a sense for global demand. Remind you that in 2011, 3 good quarters. First, second and third quarter, really at the top of that 6-year envelope of global demand, and then really came off in the fourth quarter. And through 2012, really, was below that envelope, particularly in the paint season when it was most critical, we saw prices fall. But really, when you take a look at the fourth quarter of 2012 and the first quarter of 2013, right back into the 6-year envelope, more normalized demand. We think destocking globally is taking place, inventories are pretty low at the consumer level and we are in the process of seeding inventories come down at the producer level. Huntsman is -- brought their inventories in line. At the end of the first quarter, we had 45 days, and that's about where we want it to be. I think we have some competitors that are a little higher and they're still bringing them down.

On the right-hand side, you see a picture of ores, obviously, you know the story. 2012 -- 2011, 2012, ore prices shot through the roof, particularly, chloride ores, that is rutile and chloride slag, disproportionate to sulfate ores. And we have sort of a mark where we think 2013 will average. But really, here, even now, the sulfate ores, that is sulfate slag and ilmenite, are probably quite a bit lower than they are marked on this slide, simply because there's a lot more producers of sulfate ores, particularly ilmenite, which -- there's probably 30 producers, as opposed to chloride slag, where there's probably 2 or 3 major producers, including Rio Tinto, who dominates that business.

I think my final slide will just simply be a reminder of sort of what's going on in terms of cost restructuring and self-help. In our business, we have roughly $200 million of targeted benefits that we'll see almost a little over half of in 2013. And it's really in our Urethanes, Advanced Materials and Textile Effects businesses. And in terms of guidance, we have mentioned that our PO/MTBE business in 2013 will be affected year-over-year about $90 million because of outages by our competitors in 2012 that pushed prices and margins up higher than normalized. And we saw most -- it was -- the split is $60 million in the first quarter and $30 million in the third quarter.

In the first quarter, it was a little less than that. But still, nonetheless, year-over-year, MTBE will be down in that magnitude of $90 million. We had a force majeure in the second quarter in our Rotterdam MDI facility as well. That affected our EBITDA by $20 million. And we've continued to have some struggles running that plant as Shin-Etsu, our chlorine provider, struggled to get up after a 4-year turnaround. And that we'll have some more impact later on in the year as we are in force majeure again today in Rotterdam for Europe.

I think that's all I have. David?

David L. Begleiter - Deutsche Bank AG, Research Division

Perfect. Kimo, I'll begin the Q&A session here, this is the chat format. Can you first walk around the world, Kimo, by region and by end market in terms of demand trends that you're seeing?

J. Kimo Esplin

Sure. For us, Asia continues to be very strong. As I mentioned, in the first quarter, we saw 10% volume growth in Polyurethanes, and we continue to see that. We see TiO2 demand strong there, although we have one plant in the region in Malaysia. When we think about Europe, we frankly been sort of living hand to mouth in Europe in Polyurethanes. So it's -- if there's much growth up there, we're not enjoying it because we don't have a lot of product there in Polyurethanes. But the first sort of quarter we saw softness in Polyurethanes in Europe was the first quarter. And of course, auto was down probably 20% for us in the first quarter in Europe. And again, when you think about Polyurethane in autos, it's really more European luxury automobile, BMW and so forth, the more rigid seat. And the U.S. feels solid, probably our strongest region right now.

David L. Begleiter - Deutsche Bank AG, Research Division

And onto the -- in reference to the TiO2 question, I really can't say much about your -- what your -- what [indiscernible] you've acknowledged you're looking at options for this business. I seems we have most of the key players looking to divest or sell their businesses. I think DuPont is in the track to sell it. Yourself, Rockwood as well. Why now? Why is the bottom of the cycle -- people looking to exit this business? Has something structurally changed in TiO2 from prior cycles?

J. Kimo Esplin

It's a great question, David. Clearly, there have been changes. I think the Chinese, our large producers and as sulfate producers, generally, they are benefited by lower-cost ores. I don't know that there's much of a labor content that is meaningful. But it's an ore question. And if you're a sulfate producer in Europe, you still have that same advantage over chloride. I don't know why there's a lot of discussion. We're trying to be in the middle of that discussion. I'm not sure where we come out. We want to do something smart. And the interesting thing about this business is there can be huge synergies with combinations. Now the regulatory authorities are sensitive to combinations, simply because DuPont is such a major player in this industry. And so there's not a lot of strategic combination that can take place. But what can take place with strategic producers generates big savings because it's expensive to move pigment around the world. If you think about a $300 to $400 a ton price to move pigment from Europe to the U.S., for example, where there are a lot of certain grades that aren't produced in the U.S. for inks and so forth. And you're moving 100,000, 200,000 tons, that can be as much as -- if you're combining businesses that have U.S. presence or European presence or Asian presence, where you're exporting, you can save $20 million, $30 million, $50 million, $60 million on freight. Of course, there's the typical SG&A and so forth. So we want to be around the space. We're not going to do anything crazy here. TiO2 isn't necessarily something that we've got to be bigger in, we just want to be smart.

David L. Begleiter - Deutsche Bank AG, Research Division

And I know you can't comment, but if 2 of the medium-sized producers got together would be -- couldn't you see synergies of $100 million or $150 million? Are those numbers possible?

David L. Begleiter - Deutsche Bank AG, Research Division

Yes. I mean, when we -- you remember when Tonox went into their bankruptcy, we looked at buying the business. And I think we publicly stated that there was probably as much as $125 million, $150 million with the synergies with that combination.

David L. Begleiter - Deutsche Bank AG, Research Division

And looking at your TiO2 business today, what is, do you think, normalized EBITDA in this business, in '14 and even '15?

J. Kimo Esplin

Well, when we think about normalized, we have to sort of think about what the assumptions are in that normalized number. It's not a simple average. Because so much has changed. The dynamics of ore and the technologies have gone in and out of favor. We think about 90% global utilization rates. And we think that really was sort of pre-2008 utilization rates, right around sort of the low 90s. And then we think a little bit about where we are with sulfate and ilmenite, that gives us an advantage. When we look at that, at 90% global utilization rates with the current ore environment, we think our EBITDA is right around $200 million, $225 million normalized. We think, in 2014, that's where we are. We think the industry is at about 90%. This is not a big fly up story in 2014. It is back to more normalized levels. And again, $225 million, we're obviously significantly lower than that right now.

David L. Begleiter - Deutsche Bank AG, Research Division

And just lastly, on the current price increases. At least in the U.S., given that's it 90 [ph] protection period. Aren't these increasing come online after the peak of the U.S. paint season? And does that not hurt the ability to get these price increases push through?

J. Kimo Esplin

Well, if you look at history, there's been lots success in getting price increases, sort of outside of the normal paint season. Obviously, it's easier to do it as you sort of go into it. But there hasn't been much of the paint season, David. At least if you look at the volumes, they've been extremely flat. And I think that's all the destocking noise that's going on, of course. But when you think about prices, you need to really look at global prices. The U.S. prices are, oh, probably $400 a ton higher than they are in Europe and in Asia. So again, roughly $200 -- excuse me, EUR 200 a ton. U.S. prices have been announced by the major producers in Europe and an equivalent kind of $250 in Asia. I would expect that you would see those regions move up a lot closer to the U.S. And you when you think about our mix, we only have maybe 20% of our sales in the United States. So still, we think, in the regions that we produced, there's likely to see price increases that will benefit our bottom line in the third quarter.

David L. Begleiter - Deutsche Bank AG, Research Division

Very good. Maybe switching over to Polyurethanes. This is the MDI, where do you stand today in terms of global operating rates?

J. Kimo Esplin

Well, again, let's try to adjust for our problems in Europe and we'll be up and running here and out of force majeure. But David, I think we're right in the sort of 90% utilization rates in MDI. China has been where most of that production has been coming on. But it hasn't been from the Western producers. So Bayer, BASF and Huntsman all have tried to bring capacity on and haven't been able to. It's been Yantai Wanhua. And I think all of those, those 2 German companies and Huntsman, are importing into China product. And Yantai, it's unclear how much capacity they have actually brought on, but things feel fairly tight in China, notwithstanding some big capacity from Yantai Wanhua. So we see them as a price leader, in fact, in China. And they've -- the prices have held up and Asia is a great place to be an MDI producer right now.

David L. Begleiter - Deutsche Bank AG, Research Division

I was going to ask, given Yantai's emergence in the last few years, has the potential profitability of MDI come down due to their presence in this industry and their plans to aggressively add capacity going forward?

J. Kimo Esplin

Well, I think it's -- it remains to be seen how disciplined they are in the Asian region. Again, they are, for the most part -- they own a Hungarian facility. But outside of Hungary, they are a Chinese producer and they still haven't developed some of the systems. Remember, 50% of our MDI is sold into systems or, a solution that does not necessarily price MDI. Yantai Wanhua is not in that business yet. But they will, undoubtably. They're smart guys and great competitors. But when you look at historical contribution margins and by pound or by percentage, and we continue to think that if we move into the 90%, mid-90s utilization rates, we're going to see sort of a $1 billion of EBITDA generation from this business. And we continue to see, I think -- Kurt, I'm looking at you, I think we've had probably 24 months of pretty consistent sequential margin increases in MDI. And that has come by way of price for the most part. There has been some moderation in benzene here recently that we haven't had to increase price so much. But it's simply because that 50% of less -- 50% of utilization rate-sensitive business we have here is increasing its margins because things are a little tighter.

David L. Begleiter - Deutsche Bank AG, Research Division

And how much higher are your margins on the downstream systems businesses versus Europe commodity or merchant MDI?

J. Kimo Esplin

Well, I guess, it depends on what part of the cycle you're in. Obviously, when you get to the low 90% utilization rates, the component business will have higher margins than the system businesses, right? In a normalized setting, when you're not at that sort of tightness, obviously, the system business is much more stable and it has higher margins. You've seen, from an M&A standpoint, we continue to grow our systems business globally. We bought a Russian system house, we bought a Turkish systems house, we just opened up an Indonesian systems house. These system houses are really there for the smaller glowing businesses that don't know how to formulate and that tends to be higher margin as you're helping someone to get into the shoe business or some formulator -- someone who's trying to build an insulation business, those tend to be better margin businesses.

David L. Begleiter - Deutsche Bank AG, Research Division

And just on capacity, your capacity in China, you're in the process of trying to get some permit to expand capacity in Caojing, it's been I think 2.5 years now. Why so long? What's the prospects of getting permits in the next 6 to 12 months, 6 to 9 months?

J. Kimo Esplin

That's a joint venture with BASF in Shanghai. It is been a long process. And I think, David, you've probably seen this in other chemical companies, and frankly, other industries, the playing field had been level for a long, long time in China. It isn't level, particularly when there's a local champion in terms of Chinese champion in that specific industry. Yantai has been able to bring on capacity at will, it appears. But I think we're getting through that. And I don't know that it's in the next couple of months, but I think, certainly, by the end of this year, you will see an announcement that we're moving forward on that, I would hope.

David L. Begleiter - Deutsche Bank AG, Research Division

Okay. You mentioned also earlier about the growth of MDI in -- on the OSB side of the business. Again, what do you need on housing start to get back to these peak levels of profitability? I know you've increased your MDI content in OSB, but what's the housing start number to get back to prior peak levels of profitability in Polyurethanes MDI?

J. Kimo Esplin

Well, oriented strand board, that's the biggest sort of way to housing for us, right? Because you remember, the installation story is more of a commercial story. It is the panels as supposed to the pink stuff that you roll on in your attic. So the #1 sort of driver for demand is installation, but it's, again, multi-family dwellings. It is commercial demand and that is really driving it. And retrofit, right? In Europe, where you don't have wood frame homes, folks are reinsulating and so forth. But if you look at sort of the housing impact, I think oriented strand board and composite woods represent probably only about 20% of our U.S. demand. And again, not a lot of oriented strand board in Europe and in Asia. But if you get -- right now, as you think about where we are in terms of housing start, that is a lot more than we have even at the peak of the housing. We've doubled our share, if you will, in that business since the last peak of housing starts.

David L. Begleiter - Deutsche Bank AG, Research Division

Okay. Let's switch now to Performance Products. We have leading amine in maleic anhydride businesses. Talk about your amine growth strategy, you're #1 in that business, longer-term prospects for growth and margin enhancement?

J. Kimo Esplin

Yes, I think we have an excellent comparable company out there that just recently went public. Taminco is a great company. We compete with them in amines. We have different kinds of amines. It tend to be metal amines and so forth. We are in polyetheramines and ethyleneamines and so forth. But nonetheless, it's a great space and we had a turnaround in the first quarter that affected us by $50 million. I think in the second quarter, you'll see that they we're right back there at the $100 million-ish sort of EBITDA levels, very stable business. And the performance product sector, or SBU, in our business, David, is -- got surfactants that tend to be lower margin and slower growing and amines, and so the margin you see of around 10% is that mix. But that mix is changing as amines is growing. And so you have seen and will continue to see increasing margins in that division.

David L. Begleiter - Deutsche Bank AG, Research Division

I know for a fact this is a lower-margin business, lower growth but nice baseload business. Is that still core for Huntsman going forward?

J. Kimo Esplin

The surfactants business?

David L. Begleiter - Deutsche Bank AG, Research Division

Yes.

J. Kimo Esplin

Yes, I think so. You remember that we do have a little ethylene cracker and that we have that we have and ethylene oxide business that we're expanding, it's very profitable. And all that EO or most of that EO goes into surfactants. And so while it's -- if you just look squarely at the surfactants business that goes to Procter & Gamble and to Tide, so the margins aren't that great. The supply chain there, certainly in the U.S., has been great and our return on assets is in the mid-teens and it's been very stable in that mid-teens for a long time. So it's a decent business.

David L. Begleiter - Deutsche Bank AG, Research Division

I guess that [indiscernible] on my question about how is Huntsman benefiting from this low cost U.S. nat gas and low cost U.S. NGL capacity coming onstream?

J. Kimo Esplin

Well -- so you have to first remember that only about 1/3 of our business is in the U.S. to begin with. But really, our -- the greatest integration we have is in the U.S. I mentioned one just a second ago in Performance Products with ethylene to ethylene oxide. But also, our propylene oxide business. Propylene oxide has a byproduct of MTBE. And as we mentioned earlier, MTBE is really produced by butane, for the most part, and methanol. And its priced at unleaded gasoline or octanes. So really that is probably one of the purest, sort of, natural gas plays there is I think. It is just arbitrage between natural gas and gasoline. And so margins have been good and been steady. We look at year-over-year MTBE sort of margins and it's fairly flat with last year, but still, very, very strong. So we're happy with that business. Again, we're interested in the propylene oxide molecule, mostly because it goes into our polyols and Polyurethanes system business. But MTBE is a nice byproduct to be in.

David L. Begleiter - Deutsche Bank AG, Research Division

Okay. You have a very nice franchise in maleic anhydride. Talk about that business growth prospects going forward.

J. Kimo Esplin

Yes, maleic anhydride goes into unsaturated polyester resin, basically fiberglass. So it is shower stalls and Corian tabletops, and so very sensitive to the construction cycle. And the business is strong. It is well in excess of our average margin. This business typically averages in the 15% to 20% EBITDA margins. We're the largest in the world and have 2 plants in the U.S. that we'll capitalize on housing.

David L. Begleiter - Deutsche Bank AG, Research Division

Okay. And then switching over to Textile care. This business made money in Q4, also in Q1. It's ongoing substantial restructuring. First, will you make money in Q2? And again, as you layer in the cost savings, what's the normalized profitability of this business in, perhaps, '14, '15?

J. Kimo Esplin

So it is certainly 1 of our 5 divisions. It has the smallest amount of capital employed there. I think we have maybe $250 million, $300 million of capital versus $2.5 billion in Polyurethanes. But nonetheless, a business we're trying to get right. We have a $75 million restructuring plan going and it's all around Basel, Switzerland. And we are still running that plant or big chunks of that plant. But really, we're in the middle of sort of shutting it down, letting people go, and you'll start to see some benefit in the second quarter. I would expect to see modest profitability in textiles. Our expectation is that business can do $50 million, $60 million of EBITDA, which will be about 10% EBITDA margin. It's very little CapEx. From a return on asset standpoint, it's going to be 15%. So we will get it to the point where if it makes sense in our portfolio, great. If not, it's a value and it's all around getting production out of a very high cost area of Switzerland.

David L. Begleiter - Deutsche Bank AG, Research Division

Understood. Maybe just switching to Advanced Materials. We're moving downstream in both aerospace, automotive. Talk about again some of the growth prospects and opportunities in that business going forward.

J. Kimo Esplin

Sure. It's like some of these other businesses that are large sort of oligopolistic sectors that are integrated into more specialty formulation system businesses, but there has been some commoditization. And so basic liquid epoxy resin is a tough business. And that continues to be tough. Our -- we're doing some restructuring there. Again, it's a former Ciba business, and so we have a Basel, Switzerland-based division that we're letting a lot of folks go in terms of restructuring initiatives. But the more specialty end, you think about aerospace, Cytec, Toray, Exel, we're supplying nearly 100% of everything that's going into an Airbus or a Boeing airplane in terms of resins and composites. So we have virtually all of that aerospace growth. And so, as you think about those prepreg companies, we will grow with them in this space. And so, again, also in do-it-yourself adhesives, where we have a consumer brand in places like Asia and India, that continues to grow nicely. So really nice sectors. But also, a good 1/3 of that business is basic liquid epoxy resin, negative EBITDA margins. We are rationalizing capacity there. We're in the process of taking out some capacity so that were not long in BLR, and we're just really, for the most part, integrated into our own formulation businesses.

David L. Begleiter - Deutsche Bank AG, Research Division

So when you add up all the segments, restructuring, earnings potential, what's the EBITDA potential portfolio in a normalized 2014, 2015 environment, do you think?

J. Kimo Esplin

Well, of course, it's hard to predict TiO2. Who knows what TiO2 will do? But if you really take our normalized TiO2 view and sort of overlay it on top of our other businesses, and again, MDI doesn't cycle a lot, it does grow. You do see some MTBE volatility there. But this is a business that can do $1.5 billion, $1.6 billion, if everything's working well.

David L. Begleiter - Deutsche Bank AG, Research Division

Let me see if there are any questions in the audience for you, Kimo.

J. Kimo Esplin

Please.

David L. Begleiter - Deutsche Bank AG, Research Division

We have a mic. So wait a second. Charlie, thank you.

Unknown Analyst

Can you talk about decontenting in terms of your pigment customers? Is Dow really making any progress with the EVOQUE? Have you noticed any change relative to past cycles?

J. Kimo Esplin

Yes, there has certainly been some substitution that's gone on. Not significantly. And I think there is some confusion as to when paint companies talk about that, whether they're talking about substitution of Western pigments for Asian pigments, or are they talking about just substituting TiO2 altogether. There has been -- I think, there probably has been 3% or 4% substitution away from TiO2 completely. And EVOQUE and some of these other products have been part of that. Most sophisticated Western paint companies have been reformulating around TiO2 for a long time. So they're not big, big jumps that people can make. Sure, little tiny paint companies in the middle of Asia probably haven't done that, and they could do that and they can move larger amounts of TiO2 out of their formulations. But generally, TiO2 is an important aspect of the higher quality paints. If you paint an underlying surface and you can see that color, people view that as a lower-quality paint. And that's going to be a TiO2 opacity kind of thing. So there has been. But generally, what we're seeing is, is that paint companies are using Asian pigments more and more. And when we think about 90% utilization rates, we haven't discounted the Chinese producers. They're in that number. They have been players and they will continue to be players. And I think the -- certainly, the equity markets try to simplify the Chinese pigment producers too much and think their quality is x-ed. Really, it's a broad spectrum. There's some really good pigment that comes out of China, and there's some really terrible pigment that comes out of China. And again, because there's no national champion in China, there's lots of producers, and they all have different technologies and they've come from different places. So again, think about that very broad spectrum of providers, and the Chinese are getting it. They're smart competitors in every aspect of our businesses, in every business, you see the Chinese, and they're coming up to speed very, very quickly. We wouldn't discount them in TiO2. There have been things going on in China that make us think that the amount of capacity will slow. They have decided in China that they do not want to grant licenses to additional sulfate producers. I think one of the last plants that has a grandfather license is still -- the plant is still coming on. But I don't know that we're going to see the kind of 100,000 tons a year of Chinese pigment that we have seen come out, out of there. So they're very focused on chloride right now, trying to get that technology. I think I've probably taken your question further than you wanted me to. But that's some color. Again, when you look at our envelope of demand from an industry standpoint, there's no inventory build there. I think we are back to those sort of 85% utilization rates. And I think if we see some demand recovery in Europe, we'll be closer to that 90% utilization rates.

David L. Begleiter - Deutsche Bank AG, Research Division

Any more questions from the audience? And I -- just also in TiO2, Kimo, this time, we're seeing ore guys be resistant to lowering prices here. You've got the coming [ph] back capacity, coming back production. Typically, you've seen TiO2 prices fall as -- along with ore prices, what's been the dynamic this time that the ore guys are holding fast, trying to hold firm on their prices?

J. Kimo Esplin

Yes. Well, I view it as the big gorilla in the room when you're talking about ores, and that's Rio Tinto. Rio has well in excess of 50% market share of chloride slag, and that is 80% of the chloride ores that are consumed. Certainly, most chloride plants need some rutile to run. But right now, rutile and chloride, in their contained-titanium basis, is in parity, for the most part, same price. But -- so if you think about kind of $1,500 a ton for chloride slag, you drop all the way to $600 a ton for sulfate slag. So it's half. And then you go to ilmenite and it's less than $200 a ton, right? So ilmenite is -- that's 50% contained titanium as opposed to sort of 85%, 90%. But you run the numbers, sulfate -- those ores are significantly lower. And it's all about, I think, Rio and Iluka, who have held on the price and have been able to rationalize capacity to keep price. And our sense is, is that's not going away. That, that differential will be maintained and chloride producers are going to have to pay more.

David L. Begleiter - Deutsche Bank AG, Research Division

You've been increasing your ability to use more ilmenite. I think, now it's about 2/3 ability to use ilmenite, is that correct and is that still increasing?

J. Kimo Esplin

Right. We have -- of our 4 European sulfate plants, 2 of them are ilmenite -- or excuse me, of our, I'll say, 5 sulfate plants. We have 2 chloride lines. Of our 5 sulfide plants, 2 of them are ilmenite, and we're converting 1/3 to use a majority of ilmenite, and trying to flux the others to use more and more. So I think that's going to be a key going forward. It really is.

David L. Begleiter - Deutsche Bank AG, Research Division

Okay. Maybe lastly, on TiO2. Any -- when will this uncertainty about your business be removed? Is it this year? Is it next year? When will you stop asking about the future of this business at Huntsman?

J. Kimo Esplin

Oh, you mean from a strategic standpoint?

David L. Begleiter - Deutsche Bank AG, Research Division

Right, exactly.

J. Kimo Esplin

Unclear as to sort out when all these moving pieces are going to stop. I think you mentioned something about DuPont. That will be interesting to see. What happens there, I'm not sure. As I mentioned, I'm not sure a strategic player can be involved if they do choose to do something with that part of their portfolio. But we'll see. I'm sure 2013 will be a time when most of those pieces will stop moving and we'll be able to decide if we're going to play somewhere at all. Yes.

David L. Begleiter - Deutsche Bank AG, Research Division

And last question on the balance sheet, and I think your net debt is around 2.8x EBITDA. I believe you have low 2 or 2x target. When you get there, where does M&A begin to rise up again in the pecking order?

J. Kimo Esplin

Yes, so we want to maintain an investment-grade credit rating, and I think we're pretty close. So we're not going to go out and do anything crazy. If there's an M&A transaction, we would expect that sort of pro forma that it would change the credit statistics of the business meaningfully. So don't expect this to go sort of leverage up relative to EBITDA and do something significant. If we do something, clearly, there'll have a lot of strategic rationale and a lot of synergies that will bring those credit statistics back in line.

David L. Begleiter - Deutsche Bank AG, Research Division

With that, we'll call it a conclusion. Kimo, thank you very much.

J. Kimo Esplin

You bet.

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