Peter R. Huntsman
Ladies and gentlemen, please be seated. We'll go ahead and get started here. My name is Peter Huntsman, I'm President, Chief Executive Officer of Huntsman Corporation. I'll be addressing you here in just a few minutes.
Before we get started, I would like to thank all of you for taking the time to be here today and welcome you all here. I think we have a very thorough and very exciting presentation that I'd be able to I think give you a very full and complete ideas to what this company is all about, where we're heading, and certainly, some of the value that we believe exists in this company.
Before we get started here, I would just like to make reference to the first page of your presentations that are before you, the Safe Harbor language, that we have. Many comments we make today that might be in reference to future earnings or future direction of the business, I would ask you to read and fully understand that first page and make sure that we're all doing the same right thing here.
To start off our presentation today, it gives me great honor to be able introduce our Chairman, our founder, my father, our largest single individual shareholder and an individual who has been involved in building this company, been involved in building the petrochemical industry for nearly the last half century. I know that I'm obviously very biased in standing up here speaking about my own father, but I would like just thank him and recognize the work that he does on our board of directors and giving the macro view as both an insider and as a outsider. When I say an outsider, I mean from the perspective of a very large shareholder who has taken his life and dedicated it to this business and the cause is much greater than the petrochemical industry.
So I would like to thank him for taking the time to be here today after being in 4 states and 6 cities, glad to see you're just getting started for the week here, but without further ado, I'd like to introduce our first presenter here this morning, my father, founder and Chairman, Mr. Jon Huntsman.
Jon M. Huntsman
Well, thank you very much, ladies and gentlemen, and my health is great. Sometimes people ask how I'm doing and I want you to know better than I've done for a long time, and I'm excited about that because as I look at my own health I also look at the great health of our company.
I'm honored for what Peter said and for his kind remarks, and I'm also delighted that you're here this morning, bright and early, and most of you are very dedicated and significant shareholders, some of you are analysts, some of you are potential shareholders and many of you are interested in the business in one way or another.
May I just say that I've been to many of these investors days. In fact, I was around before they even had investor days. And my -- when I was with Dow Chemical Company for a number of years, I left them 42 years ago and was one of their divisional subsidiary presidents and left them as an outstanding company, I enjoyed thoroughly my association with them, of course, all the people I was with at Dow to that point in time have retired, many years ago. But I started a small business, and I knew we could do it. I understood very well the commodity chemical business in those days and here we are 42 years later, and the industry has changed dramatically. Most of Fortune 500 companies of those days are now gone, merged, bankrupt or gone out of business in one way or another, virtually all of the chemical companies that we competed with 4 decades ago, 5 decades ago, similarly, have changed, have altered, have sold, have gone bankrupt, have had troubles with energy prices, but the landscape has changed rather dramatically and we have survived over these 42 years because of a tremendous management team, tremendous debts and fortification and a great will to succeed and to win. And somewhere along the line, Wall Street has failed to give us credit for the tremendous management team we have for fighting the wars, for going through the oil embargoes, you read about it. I went through it. When 100% of our products was cut off in 1973, it's great to read about it. It's easy to go to class, to go work or to Harvard, or Stanford or where ever you went, read all about it. I fought through it and made sure that our company was successful and made sure that we were stronger after the oil embargoes than before. We've been through every energy crisis in the last half century and we've survived it. We've been through recessions and depressions and regime changes. We've been through failed mergers, litigation. We've turned them all into very strong positives. We've got a terrific management team, the best management team in the chemical industry and I'm very proud of them. I'm very honored they represent the best management team of the Fortune 500. They've been through wars and they've been to situations and they've been through ups and downs in our industry. We're not changing management every 2 years or every 4 years or every 6 years because we have the finest individuals in the chemical industry that we know about. And we get no credit in the marketplace for that.
So, I'm going to talk today about why we are so undervalued and why it irritates me and why it upsets me. Because we are one of America's and one of the world's truly great chemical companies. And we have survived and we're growing and we have more products and we have more innovation and we have more technology and our R&D centers are humming and we got the footprint around the world globally. We have a great, great company. And I believe in it with all my heart. I've got -- I'm the largest single shareholder with almost 20% of the stock. I would've sold it if I would have thought this company wasn't going to make it. If you look at my past history over the last 7 years since we've been public, I've sold very little of any of my stock and yet I've given over $1.25 billion to charity to help fund cancer and to help support cancer and other great causes in America and throughout the world. But I haven't sold very much of my stock and my foundation stock because I believe in this company with all my heart. And if I believe in it with all my heart and I'm the largest shareholder, I'm Chairman of the Board of The Wharton School of Overseers. I've been around. I understand business on Wall Street, on Fleet Street. I understand business in Shanghai and Mumbai and Sao Paulo and around the world, and I'm no dummy. I want you to know that. So I put my money where I think I get the best return on my investment and where we have great management, where we have great opportunities and where we pay a strong dividend and haven't altered the dividend during the times that were tough.
And speaking of tough times, we don't run for the cover when things are tough. We had the big boys in Wall Street try to chase as out on our last field, they found it costs them $2.7 billion to play ball with Huntsman. Yes, we're country boys, but we're tough. And we understand how to win and how to play the game. We've been hanging around for a long time. A lot of people didn't think we'd make in 2001 when some of the banks said these guys will be bankrupt. They can't possibly make that bills. We've made every single bill at 100 cents on the dollar, some people jumped out ahead of time, I told them not to, they did anyway. That's their problem. That's all management they would have done extremely well.
We had our best year in history last year. In fact, some of the stock analyst at the beginning of the year said the stocks were $24, $26 a share and then later in the year, they said: "No, it's worth $18 or $19 a share." Then at the end of the year, they said: "No, it's worth $14 or $15 a share."
We hit the number you told we told we would hit. We said if we have a good year, we'll hit between $1.2 billion and $1.25 billion of EBITDA.
We kept our end of the bargain. What happened to the stock, it tanked. Why did it tank? I don't know. I don't know why these things happen. You can come up well, we had too much TiO2, we didn't have enough polyurethane, we didn't have Advanced Materials, we're trying to move a division over here. We came up with our number. We hit our number. These analysts were all over the board and I don't understand it. I've been in this game 50 years. I followed Dell. I'm a large shareholder of Dell. I'm a large shareholder of our competitors. I watch what you say about them and I look what you say about Huntsman. And somewhere along the line, you got to get your story straight. Because we are worth considerably more than the valuation you placed on us today. If we just went out and sold our technology, if we just sold the global footprint that we have around the world in India, in China and Brazil, in the Middle East, we have one of the great global footprints of any company in the world today, let alone in the chemical company. And took our technology and took our management and took division-by-division, our stock would double in price. And yet somewhere along the line, we keep getting these things well, you're not doing this right, you're not doing that right. So we hit the numbers that you guys think we ought to hit some of you analysts and then you start playing us down and playing us down. I've never seen anything like it. And so I'm standing here today as a large shareholder trying to understand how do you get your stock value up when people are constantly plummeting you, telling you that you're not doing what you're supposed to do. I think I'm the master of this game. I've been at it longer than any of you in this room, I'm the Senior Chairman of the entire world in chemical businesses. We know how to run a railroad. We've run through all of these crises. We've run through -- we've stayed strong when other companies said we'd go under. We've got a tremendous, tremendous company.
I want to tell you today about a couple of the reasons why I think 2012 is going to be the year of the shareholder and why I believe that it's going to be one of the greatest years in our history.
First of all, your concern is to get a great investment return on your investment. Our job is to see that, that happens. We paid a strong dividend. We haven't changed it, we didn't come out and cut it out in 2008 and '09 when people are trying to plummet us and not hold up their end of the bargain on some of these Walls Street contract. We took them to the cleaners and we kept our contracts and we kept our dividend straight and constant all throughout.
But I want you to understand that my job is to cure cancer. Do you understand that? I put $1.25 billion in charity. No man in the world has put more into cancer and cancer research than I have. And I think that's a great tribute to our company that we can build a company like this, we can build a business like this. 1 out of 2 men and 1 out of 3 women will have cancer in their life time. You ought to see what we've done at Huntsman Cancer Institute. How does that help you? It helps if you if you have cancer. It doesn't help your portfolios, but what does help your portfolio? The fact that we are a great American and global company that has humanitarian interest, that has founders and his family started it is more concerned with the life and the well being of our fellow citizens than we are anything else in the world. And that's what our legacy is and the process of getting there, we want to be darn sure that our shareholders benefit, that they do well, that they make money, that they are treated well and that they're not downgraded because of some foolish ridiculous stunt that somebody put forward that says, "Well, they had too much TiO2 this year. Let's drop their stock 50%." That's outrageous. That is absolutely outrageous. We held up our end of the bargain and had the best year in history last year with our differentiated product lines. The best year in history and yet our stock was one of the lowest with respect to valuation and with respect to our multiples.
So something basically out there isn't right and you have to tell us what it is. Do we have to go out and stand on the corner on our head? Do we have to throw eggs in the air? What we have the do? We have the best management team, we have the best technology, we have the best global footprint, we are expanding rapidly in China, in India, Brazil. We've got tremendous technology that we're using, our management team, as I can say, in 50 years, has never been stronger. So I'm puzzled and disappointed to be honest with you that this great company that's done all of the things that we said we would do -- and let me tell you this, we ended the year great and we are going to have a great first quarter. All these chemical companies said, "Well, it's going to be a soft first quarter, it's going to be soft -- to heck with that. We're going to have a great first quarter. We're going to have a great year this year and I want you to know that because we've been working hard toward moving this company up, cutting its costs, improving its quality, doing whatever synergies we can do and I really give our management team 100% credit for holding up their end of the bargain. I just don't understand the Street and I don't understand the analysts. And I think it's terribly unfair, if you want to know my it. I watch this game for 50 years and somebody if you want to come up and do basic chemical industry with me, I'll take any or all of you on. I don't mind that one bit. All I'm saying is that I just think that a great company like Huntsman, think of it. How many companies are left in our size in the world that aren't state-owned, that aren't sovereign owned, that aren't division of big oil company? How many are left? You think we're sought after by other companies? Absolutely. You think we' d be a great fit for other companies who are sovereign companies or state-owned companies or divisions of big oil companies? Absolutely. What other companies are left like us? We're not a BASF or Dell. I'm not talking about the super large. I'm talking about the medium-sized companies that have a global footprint, that have great management, that have great technology, that are moving around the world, that are setting up new sites and new expansions and they're moving forward. I don't think there are many left. If there are may left, it means that our valuation should be very strong. It means that we are being sought after by many other people, which we are. It means we have a great opportunity to improve shareholder interest. Does that mean we're going to sell the business tomorrow? Of course, not. Does that mean all options are open? Absolutely. All options are open.
So we're not going anywhere, sitting here at the bottom of the heat and have a somebody say, well, this company is no good, this company is failing here, is failing there, and it's just a bunch of bs. And I'm not going to go for it. As the largest shareholder and as the Chairman of our Board -- Executive Chairman, we're going to do something in 2012 that make that improved shareholder value substantially, and you'll see by our first quarter results that we mean what we say.
Now let me tell you a few things about I think's think flying ahead of us. The minute this housing market turns around, we don't have to build anymore facilities. We don't have to add anymore sites. We've got -- as soon as this housing market turns around, we've got all the product that boom right into it and we are a big factor in the housing industry. The auto industry is turning around and we're a huge factor in that, in that particular field. We don't need to add anymore CapEx. We don't need to add any more plants or facilities.
As the economy turns around, we're in great shape to ride this economy, we're right on up. Our people trimmed our costs. We're efficient, where as low on our cost cutting that we've ever been in our history. Peter's done a fabulous job. Peter was 10 years old when I used to take him around the company and he would stand up in front of thousands of our employees around the world and tell him what he's going to do in another 20 years or 30 years. Here he is almost 50 years old, 40 years later. He's a veteran of this industry. He's the best CEO in the chemical industry. You won’t find a better CEO. You'll find a lot of companies out there turning around trying to some engineers somewhere so they could be president of some one of these chemical companies. Peter understands exactly what he's doing and our family has been a chemical family. We've been in this industry a long time. We understand it and we pride in it, we love it. We think it's the best industry in the world and this is going to be a great year. And Peter's team are around and you're going to hear from these individuals today. They're going to tell you about their cost-cutting programs. They're going to tell you some of their synergies. They're going to tell you how good the next year looks or what some of our challenges are. I would just tell you right off the bat, it's going to be a great year in 2012. It's going to be the year of the shareholder and I'm thrilled.
I've told some of you as Chairman of the Wharton School, Board of Overseers many years now. I see all of the companies in the world. We've got 130 people in our various boards. Now with The Wharton School, 7 different boards. I Meet with them constantly. We understand the markets on Fleet Street, on Wall Street, and Shanghai, and Mumbai, and Sao Paulo. We follow the world market very, very carefully. We follow what's happening in the classroom, all the way to graduates, all the way to their opportunities for job and all the way through to what happens to them 3, 5, 10 years after graduation. We understand the marketplace. We understand Wall Street. We understand the macro and microeconomics of not only this industry, but business in general.
And so it isn't like you're dealing with some country boys that just walked in and decided to open up shop. It's a great, great business and I'm pleased to say that as I look forward, as I look at our industry, and as I look at our opportunities for the future, they've never been brighter. They've never been brighter. And I'm just thrilled with it, with the opportunities that we have going forward. And I'm -- and then once again, the mischaracterization of this company and the low value is something that I can't explain to anybody, not even my wife. I can't explain it to myself. We are worth considerably more on break-up value. We're worth considerably more on technology. We're worth considerably more on every factor that you can think about on this measly price that we have today, which is outrageously low, and in my opinion, totally doesn't reflect the value of a great American company with global footprint all over the world. And if -- when people look at it they can't believe it. They can't believe the exceptional job that our family, that our professional management team and that our people have done all over the world. We're growing rapidly in the developing nations of the world.
Now let me just tell you what a couple of our secret weapons was. Our #1 secret weapon is our Board of Directors. If you all look at the last 18 months, you'll find that half our board is rotated around. We brought in the former dean of the business school, and -- Dr. Hartford, who's a terrific, terrific individual. He's now the President University of Delaware, but he was granted awards in school and did a terrific job, made #1 over Harvard 4 to 5 years the financial time list of the schools. He's got great knowledge.
We've brought in Tony Burns. Tony was the President, Chairman and CEO of Ryder Systems. He did a great job at that company, certainly on the board of many other companies. He's a fabulous businessman, the Executive Chairman of Stanley Black & Decker. They just merged. They just brought together a great merger. It brings in all that experience how to merge businesses together. They completed it. The stock has gone up. They've done a great job. Nolan Archibald, one of the really outstanding leaders in American industry. Al Shoemaker was Chairman of First Boston before they merge, one of the great financial minds in the industries. Dr. Beckerle, one of the great scientists, National Institute of Health, CEO of the Huntsman Cancer Institute and a number of other directors that we had before, including a new one that we brought in from England who served on many of the boards in England, Sir Robert Margetts, and has a tremendous knowledge of the chemical industry. I think it's the best board in America.
When I was on Campbell Soup board, they said that was the best board of America, and I think this is a much better board than I've ever seen assembled.
Now let me tell you what I think our secret, secret weapon is. Our last board member is Ambassador Jon Huntsman Jr. He came on the board just one month ago. Ambassador Huntsman desires are to spend several months this year with our company. Could you imagine somebody who's been the U.S. ambassador to Singapore 20 years ago and he's so highly regarded? We have many operations in Singapore. Singapore is our heart throb of America. He is highly respected in that part of the world. And he was a U.S. trade ambassador, doing trade all over Asia and all over the world, knowing all of the world leaders and knowing the best of our business and other businesses. Then he was a 2-term governor of Utah, which was very, very helpful, and of course then, he was U.S. ambassador to China.
How does it seem to have the U.S. ambassador of China, who knows everyone in China and who knows our customers and who is going spend several months in the summer helping us with our customers, building our businesses, building new facilities, helping his brother Peter and our management team with a wonderful relationship, doing it all by speaking in their native tongue. And so we're honored to have Jon Huntsman Jr. as part of not only our board of directors, but of our management team, spending his time and effort in areas of the world where he is so highly regarded. No other company in the world has that. He gets offers every day in the 7 figure number from hedge funds and private equity firms, other companies. Will you spend part of your time, Ambassador Huntsman, because we know how you're respected and admired and how your family is in different parts of the world. And so we're delighted that this summer and during this year, he'll be assisting his brother and he'll be assisting our management team in going through these various parts of the world to really, really explore the build, our business, in the highest possible areas.
Well, I mentioned all of these things not trying to be critical, not trying to be upset in any way, but by trying to be frank and honest about our vision. We have a great vision going forward. Before this company needs to be, where it's going and what our future, what future we have and where it lies ahead. Our stock valuation should be up dramatically. This is outrageous, as I said before, for us to be in this position and we don't intend into stay down here. We intend to move forward and the intend to let you and our other shareholders around the world fully understand what the valuation of this company is either whole or in part and move forward on that basis.
As I mentioned, going forward, every option is open and on the table, but we are going to improve our shareholder position and create shareholder value. That's our job. That's the job of the Board of Directors. That's my job as Executive Chairman. Our future has never looked brighter. I'm excited and thrilled to introduce to you now, the best CEO in America, an individual who's spent virtually his entire life in this business, our Board respects him immensely. And I turn the time over to Peter Huntsman, our great CEO.
Thanks, Peter, and thank you, ladies and gentlemen.
Don't be as tough on them as your old man was, Peter.
Peter R. Huntsman
Next you'll -- my mother up here and then you'll really see how the family feels about things. Thank you, dad. Thank you for the passion and the direction that this board and that you bring to this company.
Our job, today, is to deliver. Our job today is to convince you that the passion that you've just heard and the passion of this Board of Directors and this management team is going to deliver. I'd like to take just a few minutes and give you a summation of the business where we see ourselves in the first quarter, where we see ourselves going over the course next few years, and the opportunity that we see that lie before us.
As a reminder on the first slide of my presentation, you'll see the breakdown of the revenues. The adjusted EBITDA. My father said that last year 2011 was a record year for us on an adjusted EBITDA.
You also see the geographic footprint that you'd see at the bottom of the left-hand corner of that page outlining the great geographic diversity that this company has.
I would like to note that as we show a peak EBITDA of $2.1 billion, we are not giving this as a forecast. This is where the company's going to be this next year or even the subsequent year. What we've done here, we've taken the peak performance, not the theoretical performance, but the performance in the margin on a per pound basis this company has hit in the past and we have taken those very kind and put them on top of each other.
What is the potential peak EBITDA of this company? We would suggest that it's $2.1 billion. Will all those products be peaking at exactly the same time? Obviously, nobody knows that answer. But again, we often are asked what is the peak potential as to where this company has been on a marginal basis in the past, not necessarily where it theoretically may go -- going into the future.
We're often asked too as to what is the upside? If I were up here today saying this last year was a peak performance, a record EBITDA for us and every one of our businesses that we're operating at the peak of potential performance. I have a very difficult time. I'd be really struggling up here to tell you as to where we ought to be going from here. But again, look at the peak, the estimated peak and we have the trough over the last couple of years as to what we believe each of our divisions are capable of doing.
When we look at the polyurethane, we obviously, see the most upside in a recovering and a continuing recovery that is taking place, we believe, particularly over the next 1 to 2 years coming forward of our Polyurethanes business on the far left-hand side. Our Performance Products business. Again, we see an opportunity of that business continuing. We see a continuation of the tightening markets, maleic anhydride, turnaround in the housing market, automotive, infrastructure and so forth, Advanced Material. Again, I think that you'll see a great vision here in the next few minutes as our divisional President talks about that.
Textile effects. I don't know if we can go anywhere but up from here. But this, of all of our divisions, is again, you'll see in more detail, $75 million of costs-cutting over the course of the next 18 months. $100-plus million of working capital improvement, structural change in that business having gone through the worst recession and the greatest spike in cotton prices over the course of the last 2 years. And, of course, our Pigments business. This is a business -- this the business that closely -- most closely operating to what I would consider to be peak EBITDA.
Question that we have before on pigments and something that I think that will adequately be answered hopefully today is, are we peaking or is it a plateau? Is this is a business that 1 year or 2 from now is going to be crashing down or is it going to continue to be, for the next foreseeable future, at least, a strong cash flow generating division for this company?
So look at the various potential upside here we continue to believe that there's strong upside in our various divisions. My father made reference to the cost-cutting that we have that will be taking place over the next 12 to 18 months again, on a division by division basis, you'll see the amount and you'll see the timing by when that should be fully implemented on an annualized basis. Again, this will be ramping up gradually throughout 2012. Some of the cost cutting, for instance, in Advanced Material will be done this year. Others of it will be done throughout 2012 going into 2013.
Note that I believe, personally, that the number $190 million at the bottom that it will end up exceeding $200 million by the time we're completed with it.
I would also say that with it, we're also going to the company looking at the structural working capital. Where can we structurally change? Not just go out and starve the supply chain but how do we go about structurally changing the supply chain of the company to take literally $100 millions out of that supply chain and bring that to the bottom line and improve working capital.
One of the areas that I believe is a genuine game changer of the petrochemical market globally, particularly here in North America, is going to be the natural gas market. A lot of people ask the question just what sort of advantage does North America have? And we talk a lot about thermal values and MMbtus and so forth. Let's just take natural gas, convert it over to what Huntsman is actually paying around the world and convert natural gas value to crude value.
So on this upper chart up here, these aren't various market data points from consultants, because what actually what we're paying is large natural gas consumer in North America, Malaysia, our facilities in China, and on average, European Union. Mostly be in the Northern European sectors of the EU.
What I've done is I've done in of this bottom of this chart which is gas equivalent to crude pricing. This is a game changer that is taking place. Look at the -- our gas in North America equivalent to about $15 per barrel on a BTU valuation, on a decatherm valuation, compare that with Malaysia at $42 EU, at about $60 China at about $100 a barrel.
This truly is a game changer, and I'm not sure that the U.S. will see a great deal of competition from frac-ing natural gas for probably 3 to 5 years would be -- and that's assuming that the Europeans were able to move far more aggressively than anything that they've indicated over the last year or 2. As a matter fact, countries like France have actually banned even the experimentation and the -- any work at all in the area of frac-ing in France.
What does this mean again for Huntsman? And how are we positioned to take advantage of this?
What I've done here, start on the right-hand side of this. You'll see that all of our raw materials that we purchased as a company just shy of about 4.5 billion pounds of raw material. These are all of our raw materials that are either NGL, natural gas liquids based or natural gas liquid derivative, where you would have an advantaged by the purchasing or manufacturing these products in the North American markets, take advantage of this cheap gas. You will see that of our raw material purchases in the areas of chlorine, ethylene, methanol, ethane caustic, propylene and ethylene oxide, 80%-plus of our raw material consumption of natural gas and natural gas derivative raw materials are purchased in North America. So we may only have 1/3 of our sales as a company in North America, but I believe that we are uniquely positioned to be able to take advantage of this natural gas advantage and we believe that, that will be for some years to come.
How will that affect our capital expenses as a company? Well, 2 years ago, as we were expanding in Asia and as we were expanding in various other parts around the world, the idea of putting more capacity in the North America 2 or 3 years ago was not something that we would've considered all of that likely of a prospect.
Today, this is the hurdle that is somewhat akin Middle East economics. And in many regards, we have very close to Middle East economics and raw materials but we also have the stability, the rule of law, we have an infrastructure, we have a customer base, a manufacturing base and the synergies in North America that we typically and most companies don't have as widespread throughout the Middle East.
As we look at capital projects going forward, the hurdle rates now is, can we produce it in the U.S? Can we incrementally expand in our capacities in the U.S.? How do we take advantage of this?
Again, I believe that it is an advantage of the North American petrochemical industry, not just on the commodity side, but mind you, on every plant you have an energy consuming entity. This is affecting U.S. manufacturing. It is affecting refining, steel, aluminum, the chemical industry. I believe that we are in a unique position to be able to take advantage of this.
Let me talk for just a minute about some of the opportunities that I see as far as growth is concerned. 70% of our sales of the company, roughly about 60%, 65% of our sales in the company, were in North America and Europe. And over the course of the next 2 to 3 years, most people are saying that Europe will be lucky to have 1% to 2% growth, north America perhaps 2% to 3% GDP growth. I believe that we are uniquely positioned within those markets, as well as the international markets as well, but let's just focus for a second within those 2 markets to take advantage of industry segments that are going to be growing much greater than 1% to 2%. Does anybody believe that housing, given it's very, very historical low basis, when I say historical basis, we were building more houses in 1960 when the U.S. population was half of what it is today and GDP was a fraction of what it is today. We were building more houses 50 years ago than we are today.
Does anybody think that the housing market is actually going to recover at 1% to 2% over the course of the next 2 to 3 years?
As we look at these various segments of our company, this company continues and has been very heavily weighted towards the construction, housing, globally but particularly in North America into that market. As you can see across all of our divisions, there's a unified front and a unified opportunity. If you think, I obviously do, that housing -- and I'm certainly not up here saying housing is going to from 0.5 million up to 2 million units in the next couple of years. But just say go to the historical low of 1 million units over the course of next 5 years or so. I would say that you're going to see tremendous growth in North American housing. We're uniquely positioned to take advantage of that.
How about the fuels and energy area? Any of you that have invested in stocks that are part of this phenomena that I've just gone over this game changes taking place in North America, we are the company that is supplying the products, the chemicals and so forth that will be used in the enhanced oil recovery market. We are seeing and continue to see particularly in our performance product, and we'll be talking more about this in some detail in just a minute.
In the entire fuel and energy sector of our business, installations makes up 9% of our sales as a company. Energy conservation with $100-plus crude oil around the world right now, energy conservation is very important and will continue to be a large growth engine. Where even in Europe where you may see 0 to 1% GDP growth, we continue to see strong single digit and low double-digit growth in this important area where we have a very strong, very favorable market condition.
Aerospace makes up 1% of our sales in our Advanced Materials group makes up over 1/4 of our EBITDA is the 787 Boeing, is the Airbus 380, the 350 Airbus. As these products come online. These are just some of the most profitable products that we have. Not a single application, but in a multiplicity of application in the aerospace industry.
My brother James will be talking in more detail about the opportunity that we see in aerospace. Again, this is largely North American European industry. Does anybody think that the order patterns and the applications, especially in carbon fiber and epoxy-based materials going into the next generation of aircraft are really only going to grow at 1% to 2%? So even within what we would consider to be perhaps rate of these mature economies or slow-growing economies, we see tremendous opportunity as a company. As we look at the chemistry within the company, from aldehyde MDI crude oil versus natural oils and so forth, carbon fiber, aluminum and steel, the TiO2, every one of our divisions.
My father talked about the technology side of the business. The technology pipeline is full. We believe that there's opportunities within this economy to continue to replace, to continue to take advantage of high energy, of new energy, to continue to take advantage of the changing consumer trends and opportunities. And we'll be talking about these throughout each of our presentation.
The takeaways that I would like you to think about when you leave here today. Are we well positioned to take advantage of what we continue to believe in what we have seen over the course of the last 18 to 24 months we believe will continue this game changing energy opportunity in North America.
Are we focused in the right areas of growth? Again, it's not just being in the right geographic areas of the world, but being involved in where the opportunities of growth are going to take place. Do we have that geographic footprint? That if Europe were to slowdown, that we still have opportunity to grow as the Chinese economy continue to grow, as North America continues to recover? Are we well-positioned to take advantage of that? Are we focused on costs and so forth? Are we controlling what we can control of those variables that are within our control. Having $200-plus million over the next 12 to 18 months, I believe that we are cutting faster and more aggressively than our competition. I believe that the majority of this will fall from bottom line. I believe that we have a strong pipeline of chemistry and technology of replacing existing products and existing applications.
And as I said, at the beginning of my comments, as I look at the upside, majority of our product have more upside in them particularly over the course of the next 2 to 3 years as many of these industries will tighten from capacities that were not invested in and were not put in over the course of the last 2 years.
Think of the capacity that will be coming into this market over the course of the next year or 2. These are facilities by and large that would have to be invested in and decided upon 2 years ago with much of our competition, including Huntsman, who are holding back on their capital.
As we look towards 2012, during comment that I made on our last call, I said that 2012, on an overall basis, would look very similar to 2011, on an EBITDA basis. I also said that I'd believe that our TiO2 business during that time will probably have some downward pressure on this margin. I continue to believe that.
I'm not a pessimist when it comes to TiO2. I believe that I'm a realist. If the market does better, Huntsman is very well positioned to be able to take advantage of that, but I think I owe it to you to be able to tell you what our news are in this Ti02.
As I look at other divisions, as I told you in our last conference call, and I'll reiterate what I feel about this, I believe that the other divisions our differentiated chemicals, polyurethanes, our Advanced Materials and so forth, some of these divisions start to see some de-stocking take place in the third quarter aggressively take place in the fourth quarter. I believe that we have seen a very strong turnaround in many parts of the globe.
Certainly, there's some areas in Europe that remains sluggish. There's some seasonality in TiO2 that you'll be hearing about. But as we look at our first quarter earnings, I believe that we will be very similar, if not better, than where we were a year ago at this time on our adjusted EBITDA. Year ago at this time, we're around $304,000, $305,000, $100 million and that's quite a bit better than what consensus has about there today and we look at the first quarter from where I stand today, the first weekend of March, I believe that number will be equal to, if not better, that where we were a year ago at this time.
We continue to see a recovery on a global basis. I believe that there was a de-stocking that took place in the fourth quarter that was unnatural. That was not just because of economic slowdown. It's because of tightening credit, because of uncertainty in the global market, and I believe that much of that has turned around.
No doubt there is some restocking that is taking place, but we're also seeing a strong growth particularly in these areas, housing in North America, it's not going to the roof, but we are seeing certainly better than GDP growth in applications such as that.
We certainly are seeing the avionics and the aerospace industry continuing to recover at a faster rate than it has been over the course of the last year or 2.
We are seeing the applications in the energy field and half the way recovery and so forth doing much better than GDP. As we look into 2012, I'm not up here changing our forecast for the entire year, but I will say that as we look at how the year has started, as we look at our first quarter number, I'm more optimistic today certainly than I was even month or 6 weeks ago as I look at the order patterns and so forth. I don't believe that the improvement we're seeing are just a matter of re-stocking. I believe that we're well positioned in the right areas and the right direction. And so, I don't that think that you should get that sort of specificity as far the numbers of first quarter performance on division-by-division basis, but I think that we owe it to for having spend this morning to give you from our most accurate view that we can see as of the date in the fourth quarter -- or excuse me in the first quarter performance for 2012.
Thank you very much for your time. I look forward to taking any questions or comments at the end of our presentation today. The format that we have today is that each of the divisional presidents will take anywhere from 15 minutes to about 30, 35 minutes. Each of them will have 10 minutes of Q&A as a conclusion of their comment, and because of the lack of time that we have and because of the fact that many of you start leaving at noon, we will be cutting off and be somewhat succinct and strict about that but at the end of today, we will be available for further Q&A.
So at this time, I would like to turn the podium over to Tony Hankins, who's our Divisional President and our CEO of Asia, meaning that he has responsibility of both our polyurethanes and the oversight of much of our Asian operations and so forth. Tony will then be followed by our performance products and each of the divisional presidents will take place to take their times after that.
So again, thank you very much for taking the time to be with us today. Tony?
Anthony P. Hankins
Ladies and gentlemen, good morning. It's great to be with you today. I like to take about 30 minutes, and really show with you an in-depth look at the MDI industry within polyurethanes.
So why remain some very excited about the future of this great division? During the financial crisis, there was a real inspection point in terms of regional growth and MDI. And you can see from the chart on the bottom left that Asia really came of age. The acceleration of the growth of MDI in Asia was very significant.
And also our European business took a big step forward and that's driven by installations, as Peter talked about, energy efficiency, energy conservation there is a very significant theme for this business. And I'll be looking at that a little bit more detail later on.
We have 40% of our business in high growth in emerging markets, which again, positions this business very well for the future. And we've gone downstream. We've gone downstream very significantly in terms of the systems, the formulations, the MDI derivatives, where the real value is in this energy going forward. We've made a very significant push in that area over the last few years. Again, some examples of which I'd like to share during the course of the presentation.
We have a terrific global footprint. We have 3 world scale vertically integrated MDI plants. This is the heart of our business, the very heart of our competitiveness.
As Peter talked about, in the Gulf Coast, we've seen a very significant cost position advantage emerge with the use of shale gas. Our Geismar facility in Louisiana is one of the biggest MDI plants in the world, 450,000 tons of MDI where we get the full benefit of that natural gas cost advantage.
We have a significant operation at Rozenburg in Rotterdam supplying our European and Near East business. And of course, we have now got the China plant in Shanghai, operating beyond its design capability. We're now running this plant extremely efficiently and our share of that unit is right about 150,000 tons. So across the world, we have 1.1 million tons today of very cost competitive and high technologically-base MDI production.
And to augment that, we have a series of systems houses, downstream acquisitions I'll talk about and innovation sense in all 3 regions to help drive the innovation and the growth which is the hallmark of the MDI business.
Turning to Slide #20. Huntsman is very strongly positioned MDI. MDI is the core of the polyurethane industry. It's where the growth is, it's where the long-term value is. It's where we position this business very strongly over the last 7 years. We're not confused about this. MDI is the future and that's where Huntsman has made its stand and made its commitment.
We have around of an 18% global precursor capacity, and MDI growth is accelerating. Unlike other industries which are slowing down or maturing, this business is starting to accelerate again after peak of high growth last year. Despite all the difficulties in quarter 4 and the de-stocking that Peter talked about, the MDI industry still grew 7%. It actually contracted in Q4, but globally, it grew 7% and we believe in the next 5 years, it will accelerate its growth in excess of 8%, 8.5%, driven primarily by insulation and energy efficiency in all 3 regions of the world. So we are seeing growth and we're seeing strong growth in this business.
I talked about we have the most cost-competitive plant in North America and North America is going to be a very important part of this business as energy efficiency and housing does recover and we're very well-positioned to benefit from there.
We have a great plant in Rosenberg and we have one of the best operating plant in Asia. And we highly concentrate to the MDI.
People ask me a lot about operating rates and about future investment. So I thought it would be useful to share with you a view of the industry over the next 5 years. And what we've on this slide is to list all, all of the announced capacity that's going to be going into the MDI industry over the next 5 years.
Environmental permitting and getting approval in China is getting more challenging. And the vast majority of these investments is slated to go into China, but we included them all announced and assuming that they're all approved on time and built in some of the most challenging locations in Asia then we believe the operating rates still will continue to improve over next 3 to 4 years from roundabout mid to high 80s last year to low to mid-90s over next 3 to 4 years. So we think the industry will tighten because the growth continues to grow ahead of capacity insulation. And these plants are still taking 2.5 to 3 years to build, to bring on stream, to fully operate at their designed capability. This is still a very challenging job that's why the industry has barriers to entry and why it remains more challenging for new entrants to come in, to build world scale capacity and to operate those plants cost-effectively with high-quality, high-technology product.
So the first takeout from this slide is we expect industry operating rates to tighten over the coming years.
Insulation is the major driver for growth for MDI. A staggering 40% to 50% of all energy used in the world today is used to heat or cool buildings. 25% drives the automotive industry, but half of the energy is heating and cooling building. And MDI polyurethane is the best in the planet to do the job at a cost-effective and easily applied way.
75% of all buildings today need renovation to meet new energy conservation target, and 90% of all energy required to meet targets for low-energy housing.
Let me give 3 reasonable examples of why we continue to be very excited about the growth of MDI. Let me start North America. The big growth driver in North America is spray foam. We have seen Huntsman's spray foam MDI business grow 40% per annum over the last 4 years. This is one of the highest growth of our business in North America. It's versatile. It easy to apply and if extremely effective insulant, particularly in roofing. And this market has been a really high growth area for us over the last few years.
New energy codes are requiring a 50% increase in R-value. The R-value is the insulating envelope, if you will, of the insulate construction of building. A 50% increase to meet synergy targets and mandatory tightens specifications, as well as the building's mandate to use of MDI insulation. So tremendous growth potential in spray foam.
In Europe, the MDI insulation market has decoupled itself from both construction and from the general GDP economy. So when people say that you have a significant business in Europe don't you worry about that, I look at this chart and say no because a big chunk of our business in Europe has been driven by energy efficiency, by legislation there, which is driving net 0 energy building by 2020. You can see from the chart the 3 lines here, the blue line shows what's happening in construction in Europe, which is GDP and financially driven. You can see that declined. Eventually, the insulation business, in general, which is $2 billion market now across Europe growing, but the MDI components of that has grown significantly faster from the construction market. For the substitution of MDI for other traditional material such as fiberglass, polystyrene has been very significant. On the right-hand side of the chart, you can see the thickness required at MDI in comparison to competitive products. And it is the most effective insulant out there today. That is why it is growing so quickly.
And in Asia, China's 12th 5-year plan and large part of that is mandated and it's being driven by energy conservation. Energy conservation in China is critical because China don't have enough. It's not a matter of conserving what we have, it's a matter of key things, the power they have available to continue to grow the economy and the industry by saving the energy that's being produced. Energy efficiency standards for new buildings have thought to be improved by 65% by 2020 that will drive towards non-fuel, non-fossil fuel energy as well to help stretch the capacity availability of power, reduce carbon dioxide emissions. Infrastructure growth, we expect MDI insulation to grow over next 5 years at a greater rate of 10% in the Chinese market. And it's considerably big market for us today. So growth continues at a good click in China.
Let me switch to another area of downstream growth that we have really put a lot of effort into over the last few years. And that's the high-end premium automotive market. This is a sector of the automotive market which again is growing extremely quickly. The forecast of 3 automotive will grow by 50% over the next 5 years to 9 million units, so the top-end automotives, BMW, Audi, Mercedes.
Emerging market wealth is a big driver to this. If You go to China today, you see an incredible number of BMWs on the road in China, as people who aspire to have a better quality of life, move upstream and the car choices are a main thing.
Each unit contains 17 kilograms, almost 40 pounds of MDI system. It goes into the steering wheel. It goes into the seats, it goes into the instrument panels, it goes into the sound, the acoustic insulation of the vehicles.
When you sit in the car, you make contact with the car through the seats, the steering wheel and the instrument panel. That's where you're sitting at Huntsman MDI. That's where we've made the big innovation or our big investment. And MDI provides high-comfort performance and cost-competitive lightweight capability in the fuel efficient world.
And a very good example of the work we've done is with BMW where we've built a technology center close to the BMW production line in Munich, where we have continuous innovation within our technicians from the BMW technician is developing, new lightweight seating, for example, high-performance acoustic insulation, lead emission and weight reduction technology. BMW are a great partner to grow with, very demanding, very technological cutting edge, and to win business with BMW is a great testament to the technology we're developing behind automotive business.
So this is an area that we're very excited about because it's downstream, it's premium, it's differentiated and it's very difficult to copy, and it's very difficult to get close to BMW when we have our settings spend today, we have our technicians work in those lines, that is a business that we feel is a very good example of downstream derivatization using technology and service to create significant competitive barriers to entry.
Let me talk a little bit about binders and wood adhesives. When I talked to this group a couple of years ago at our Investor Day, we talked all about composite wood products, the use of MDI as adhesives and composite wood products that bind together fast-growing wood species to give low-cost construction material. We've widen our scope now to include a Particleboard MDF, Medium Density Fiberboard. These are high areas growth because of Air Quality legislation that come into the North American market since Hurricane Katrina, and the difficulties that a lot of the people that Hurricane Katrina has in temporary housing where other materials we use adhesives. And MDI has now been mandated as a preferred adhesive to get very high-quality, low emission adhesive capability for this market. MDIs now penetrated 10% of the MDF and the Particleboard market over last year, few years. And we expect the growth here to be very significant, 30% going forward. And we're very excited about the future of this market because it's being mandated, because MDI is absolutely fit in terms of its high-quality performance and also because it's relatively low level of penetration. We see significant upside possibilities for MDI in this market. So this is an area we're excited about. And Peter talked about housing and the housing recovery. Over the last few years, the chart at the bottom right shows the amount of MDI that's used per unit of new construction. What you'll notice is that we have now substituted a significant number both in terms of alternative material to the amount of MDI per house has increased significantly.
We don't have to go back to the good old days of 2.2 million units of new housing starts to achieve the kind of sales that we were achieving pre-financial crisis.
We have put together a model here that says for every 100,000 of new homes which are built from today's baseline of 600,000, that will consume approximately 50 million pounds of MDI in insulation and in adhesive. It excludes the use of MDI in things like grout, appliances, furniture, all the other things that go into the house, that is just the construction side, 50 million pounds. And the concentration, the penetration of MDI in housing continues to increase as we continue to innovate and come up with new products, which can substitute existing materials. So you can see why we're very excited about the leverage that we have with improving housing market, but if it doesn't improve, MDI will continue to grow as we substitute and we penetrate the materials. If the housing market does recover, they would be [indiscernible] consume a significant amount of MDI, derivatized MDI in North America to grow the market.
Let me just switch track here.
I talked a lot about application growth. Let me talk a little bit about geographical growth and the big investment we've made in high-growth emerging markets. This is something that we've been active in for over 20 years now in terms of being first mover in many of these emerging economies. Over the last 10 years, we've seen compound annual growth of 5% for MDI in traditional markets, but 13% in emerging markets. And today, our emerging market and high-growth market growth represents 45% of our global business. So again, we are positioned now, not only for downstream application growth, but also the geographical growth as those economies or where the future action is in terms of growth for the industry.
Now we're making investments to capitalize on that. A couple of weeks ago, we had our groundbreaking for our new world-class innovation center in Shanghai. This is a $40 million new R&D center for our 450 primarily Chinese associates, now this will be our Asia Pacific powerhouse innovation. Not just innovations that we have created in North America and Europe where we will customize that for Chinese markets, but a tremendous amount of innovation today is taking place in China, where we will take that technology and convert it back for the Western market. It will be a two-way flow of technology transfer. And therefore, to have this technology sense of capability in Shanghai is going to be a very important part in that process. High-speed railways, for example, the noise, vibration dampening technologies that are developed in the high-speed railways, most of that is happening in China. And we're taking that technology and, obviously, customizing it and bringing it back to the West. So we're very excited about this technology center's capability and it will be fully operational by mid-2013.
And we're expanding our MDI facilities in Shanghai today. As I mentioned earlier on, we have a joint venture plan with our existing partners, producing 300,000 tons of MDI, and we intend to expand that by 240,000 tons and we're well underway with the approvals. I mentioned earlier on, the approval process in China has become more difficult and more challenging, and are particularly opposite things like cross-gene fermenting, which is a key part of the process. And we're now well underway with that and we expect and hope to have those approvals in place pretty shortly and have these plans on stream by 2015. So this will continue to help support the growth, the high growth we have in the China market.
We're also investing downstream. We're also investing in both on acquisitions. Acquisitions that give us a footprint reach, an access to a new market, or a technological edge where an operation such as the recently acquired systems house we've made in Turkey, have particularly good technology, which we can use not only to penetrate the high-growth Turkish market, but also to extend around our global business.
We intend to make several more of these in the coming months in terms of going downstream to access routes to market, to access technologies. At the bottom right, you'll see a $20 million investment we're making in a new TPU operation in China. TPU thermoplastic polyurethane is the most downstream part of our business. This has highly derivatized MDI, this is very a very consumer-driven business. These are the products which, for example, Apple buy and going to many of the Apple products where we see significant growth. They are high impact, high-performance materials which again are very, very challenging to create and very difficult to produce, and this is an area where we feel we have a significant edge. We have an operation in Germany, operation in North America. We've seen good growth in TPU. So we're good to invest in China because a lot of that production is taking place, that on the Guangdong Southern China area where we'd like to have more market access. We're investing in Russia, we're investing in India. We're building a new systems house in India. We are the market leader for systems in India. I was there last week and the growth there continues to be very exciting as the Indian government set about really looking at their infrastructure and the power growth and the insulation growth, so that market is very significant. We're building a new facility in Pune to capture that.
So in addition to the upstream investments to make, the core MDI molecules, we're going downstream, investing in the capabilities that are to verify those molecules and getting very close to our customers. Very difficult to copy, that's why we're doing it.
And our technology pipeline continues the pace. This is an area where Huntsman has made significant investments over the years. And many of the products today were invented by Huntsman over the last 40 years. The Nike shops and the sportswear, and the sports shoe market, the energy-absorbent layer, core insulation technology, an area where we have great expertise, and MDI since we talked about, many of these innovations were born in our R&D labs. And we're very proud of our heritage here and in fact, we continue to drive forward with innovation.
Let me just share with you 2 examples of new innovations we're bringing to market this year. One of them is hydroponics, flexible MDI foam which is hydrophilic; which is capable of absorbing huge amounts of water and then releasing it slowly over a period of time in a very controlled way. And this is going to be, I think, very exciting for the whole water management aspect of mega trend growth going forward in areas where water isn't abundant, where food is required. MDI hydroponic foam provides a great ability to provide water and nutrients to crops and to greenhouses, but also to green roofs. Green roofs are growing out of the business as well in terms of energy management, in terms of water management in cities. We're seeing good growth in this area and we think we have some very good proprietary technology.
The other area that we've made our big investments in is trenchless pipe rehabilitation. Many cities around the world have got a lot of ancient and crumbling underground pipework infrastructure, which is very difficult to get at and very expensive to get at. Cracked pipes, leaking, sewers leaking. New York probably is a pretty good example of a city where a lot of the infrastructure is old and it's going to need replacing and renovating. And to dig into pipe, we lift up roads to have to get access is very challenging, very expensive and very disruptive. We have developed some technology here where a cure in place system allows an MDI technological system to go down through the pipe, and actually do it step inside the pipe, to repair the pipe, to seal the pipe and come back out again without having to dig the trench up without having to disrupt the system. And we think this is really got some very significant potential going forward. And again, this is proprietary technology which is being developed by Huntsman. So just 2 examples there of a technology pipeline of innovation where we feel that MDI will continue to grow and create significant value downstream.
The business model that we are really adopting here, I think it's kind of becoming clear as we go through the presentation, is absolute ruthless cost efficiency upstream and then moving downstream where high-value technology and derivatization will capture value. So a lot of the value in this industry is downstream and you have to go deeper downstream to access it. And to compete with the world-scale plants which are being produced today, being built today, we need ruthless cost efficiency. And therefore, we have over the next 18 months, we will initiate another cost-down program, another restructuring of our upstream business where we're building our work that we've done in the past, which will take out $75 million of cost from polyurethanes which that's why competitiveness going forward. We're targeting an annualized 10% reduction by the end of this year and an annualized 15% by the end of 2013, and we have a series of projects underway to deliver that. So not just relying on the creating of valued downstream through innovation service, but really also getting mildly competitive upstream as well, as cost and efficiency becomes at a more important in the accrued MDI manufacturing process.
And our financial performance, the top right-hand chart, I think you can see from that chart that we have pretty effectively been able to pass through the cost of raw materials as they have gone up, and benzene has gone up. Benzene accounts for right about 45% the cost of manufacturing. The variable cost of manufactured MDI and benzene has gone up, I'll be speaking significantly of the last 18 months, we have and we continue to be able to pass that on down for the value chain to make sure that we continue to capture the value from the business.
And in terms of adjusted EBITDA, I think we think normalized. The normalized margins for the Polyurethanes business right about 15%, with a peak in excess of 20%, and that's when they hit the peak in 2005 when the business made close to $740 million of EBITDA. You can see now the business is starting to recover after a slow period during the financial crisis, destocking in quarter 4 and we expect the normalized EBITDA of this business to start approaching the levels that we've been at historically.
Now let me just finalize my presentation to talk about margin expansion. My priority in leading this business over the next 12 months is to demonstrate that we could improve our margins to areas that we've been in the past. And we'll do that, I think, by 4 major focus areas. Our world strength in MDI technology innovation will allow us to continue to go downstream, continue to access the high value, the high derivatized parts of the market. Strong global presence. This is not an easy business to replicate it has taken us over 40 years to establish a strong global presence. What works in China does not necessarily work in Europe or America. And I think that's something that we need to think about as new entrants come in and new entrants talk about potential growing the business. Globalization is key and it takes time to build a global enterprise. And that skill set that can transfer technology and applications across all 3 regions.
Energy efficiency. Energy conservation will drive accelerated growth over the next 5 years. So we've seen in the industry here that, that continues to grow, its growth continues to accelerate. And the things that we will do to improve margins, we see operating rate tightening over the coming years. The intense downstream focus I've talked about the last 20 minutes is obviously a key strategic thrust growth. The $75 million cost-reduction program and an essay price increases is to continue to pass down for the value chain, grow material right as they come. So it's a combination of external factors, of inherent market growth, of globalization and self-help methods, I believe, are going to be the recipe for success to restore the business, to deliver the kind of margins that we've come to expect in the polyurethanes.
I'm very excited about the future of this business. I'm very excited about the things that we're seeing and the things we're doing, and I think it has a great future.
Thank you very much.
Kurt D. Ogden
This is being telecast live on the web, so we would ask that if there's any questions, raise your hand. We'll bring you a microphone and we want to make sure that the questions are adequately heard so they can be recorded.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Tony, this is Frank Mitsch of Wells Fargo. Peter started out the session by saying that he's more optimistic today than he was a month or so ago. And I'm curious, do you share that within the Polyurethanes business? And if so, which areas might you be more constructive on today than perhaps you were just a month or so ago?
Anthony P. Hankins
Frank, I think, yes, I share Peter's optimism for quarter one. We saw significant destocking across the MDI value chain in all 3 regions in quarter 4. And in all 3 regions, we've seen good recovery in Q1. Growth rates in all 3 regions are running at or ahead of the same period they were last year. So as I mentioned, even though that quarter 4 was contracted in terms of global growth. Overall, the industry grew 7%. I'm optimistic that we will see growth this year in excess of 7% across the global industry and we've made a good start in quarter one.
Robert Koort - Goldman Sachs Group Inc., Research Division
Tony and maybe also for Peter, it's Bob Koort from Goldman Sachs. Tony, you mentioned that the guys more playing gives you the full benefit of natural gas advantage in the U.S. But I guess I'm confused to why that benefit would accrue to Huntsman? And also Peter, more broadly when you showed us your cost stack. I understand chlorine and ethaline and methanol producers use natural gas in derivatives, but why would they let you guys have that margin advantage?
Peter R. Huntsman
Well, in the areas -- first in the areas of olefins, we do produce our own ethylene. We do produce our own ethylene oxide. We are able to exchange some of these raw materials in the production of other products. I believe that our methanol purchasing, I want to get into our contracts and so forth, some of those are basis natural gas, raw materials in North America. And I believe completely in our Performance Products group where a lot of these products are consumed, I believe that when you look at our competition, we have additional proportion amount of our anilines and surfactants globally that are produced in North America. So Bob, you're absolutely right and some of these products that we're just buying on the market, a product like chlorine, we're buying it at market. No, there isn't an advantage of being in North America for that particular product. But I do believe that as we renegotiate contracts going forward as we have in the past with others of these NGL products, we will be more aggressive and having components of that finished product to be part of what we believe to be an advantage to gas price going forward.
Robert Koort - Goldman Sachs Group Inc., Research Division
And Tony, might I ask, you showed what global operating rates are in MDI and where you expect them to go, where is the lift off where there's true pricing power and margin lift? Is it in the 90% utilization range?
Anthony P. Hankins
Yes. It's in that band 90% to 95%. I mean, it's difficult to pinpoint it, because measuring operating rates is very challenging in terms of getting a precise number. But it's in that broad range where we start to see pricing power on the component part of the business. Remember, there's 2 parts of our business here, there's the downstream systems part and the upstream component part. And it's the upstream component part we're talking about that's geared to operating rates. But downstream, by and large, we're independent of that because it's technology solutions that we're selling and those are fairly independent of capacity.
Peter R. Huntsman
While the microphone is being moved over, I just wanted to comment on something that Frank said. Well, let's get this next one. Anyway, let me just comment -- I mean, Frank said earlier. I do think and this is why I express just a sense of my optimism over the next month. I believe that time I made my earlier comments about first quarter during our conference call, that we were going to see a pickup in demand simply because of the restocking that had to take place. And I believe that you would have seen much of that take place in January. So I sit here in March today, I'm more optimistic that, that continued demand that we're seeing in many of our products, not every one of them, in many of our products is more than just restocking. So the demand continues to move at a steady pace where it tells me restocking probably has largely taken place. And what we're seeing now is growth. So that's where my optimism lies more in the first half. It's not just a simple people refilling their warehouse and then kind of go back to a 1% sort of growth sort of thing. I'm sorry, next question?
Edlain Rodriguez - Lazard Capital Markets LLC, Research Division
Edlain Rodriguez, Lazard Capital Markets. I mean, Tony, China has a big area of growth for MDI. I mean, if China is slowing down, its growth target and so forth, I mean, does that concern you at all? How does that impact the MDI business in the long run?
Anthony P. Hankins
China represents about 12% of our global business today. It's clearly important to us because it's a high-growth area. I would say that probably 1/3 of that is construction, therefore, GDP related. But I'm seeing a lot of things similar to the European market and that MDI continues to substitute and penetrate other materials in the industry. So if there was a slowness, I'd still expect MDI to grow the way it has in Europe. Because in many ways, as it starts to penetrate the building envelope, it becomes disconnected from GDP. So I remain confident that we will see the business continue to grow, the growth levels I indicated earlier on, to a certain extent independent of what happens. But I'm confident that the intrinsic growth in that market will continue.
There's a question in the back here.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
Jeff Zekauskas from JPMorgan. I was wondering if you could give us a quick history lesson. Back in 2005, I think your revenues were about $1 billion lower and your EBITDA was about $250 million higher. And so what I'd like you to do, if you would, is just analyze the business conditions then versus the business conditions now to explain the profit difference, and then talk about what conditions might get us back to where we were in 2005.
Peter R. Huntsman
That's just particular to MDI, correct?
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
Yes, just particular to MDI, not to the other pieces of Huntsman, forgive me.
Anthony P. Hankins
2005 is unique. I mean, that was unique. It was a year of peak operating rates where in store capacity was running right about 103%. And clearly in that period, we had very significant pricing power across a large chunk of the business, and that was the year of record earnings. We have seen since then a financial crisis, part of the mix, the business has been remixed, growth has recovered. And I would expect that we can get back to those kind of operating rates and margins at the next peak of the cycle. I think that peak of the cycle will occur during the next 3 years. That's difficult to pinpoint exactly when that's going to happen. But the industry we expect will tighten out. There is no new major capacity going in any time soon. I mean, I listed the new plants, some of those have yet to be approved. And even when it's approved it's going to take 2, 3 years to build them. The last wave of capacity went in last year. I think it was going to be a hiatus now over the coming 24 months to 36 months. And if growth tightens up, the market, the way that we expect it will do, then it's going to be during that period that we start to see operating rates which will help achieve that level of profitability.
Peter R. Huntsman
Remember, too, that if we look at the numbers of '05 and our peak now, we basically took the same margin then. In '05, we didn't have the Congqing Chinese capacity, some of the de-bomb that worked that we've had. And we have a lower comp structure today on our SG&A and overhead.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
It's Kevin McCarthy, BofA Merrill Lynch. Tony, would you address the prospects for margin expansion on a unit basis looking into the spring? You mentioned some of the restocking that's going on, I believe that 1 or 2 of your German competitors have had some outages or will have fairly soon. Benzene looks flat to up in the, call it, 424, 425 range. Does that environment create a recipe for expanding unit margins over the next several months in your view?
Anthony P. Hankins
Yes, Kevin. I think in the short term, I think that's real. We've seen -- of the 3 regions, we've seen Asia to be the area where we've made the most progress recently. So I think that those are conditions that should be helpful. That coupled with growth, some high growth in areas that made good recovery from last year should be helpful.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Where would you put operating rates here in March for the industry?
Anthony P. Hankins
It's -- really, it's the source [indiscernible] to try and pick the month and say this is where it is at the moment. But it feels kind of high 80s, low 90s at the moment, which is a significant improvement for where it was towards the end of last year. They're running all of our units, hopefully, it's being all of its units now fully. So that's indicative that we see good demand.
Peter R. Huntsman
We'll take one more and we'll move on the next presentation.
P.J. Juvekar - Citigroup Inc, Research Division
P.J. Juvekar of Citigroup. Maybe look at the timing of the new projects that are announced, a big chunk of that capacity is coming from Yantai. So can you specifically talk about those 2 projects from Yantai and the timing on that?
Anthony P. Hankins
Yes, I think the birth [ph] of it is a question that's best addressed to Yantai. But let me just give a view from my perspective, I just think it's an enormous challenge. I mean, if you have a look at -- we have today a capacity of 1.1 million tons of MDI around the world. It's taken us 40 years to build and it's taken us -- we pride ourselves on this. I mean, we were one of the first into this business and we have outstanding MDI technology. And to bring that level of capacity on that quickly given the technology challenges of building these well-scaled units, I'd feel that's a tall order, perhaps something that only Yantai can answer. It would be -- I would find that a significant challenge over the next 2 to 3 years to almost double, if not almost triple the capacity of the business. That's a real challenge. And remember it's not just about the upstream capacity. It's about downstream derivatization. It's not enough just to build the plan. You have to build the markets, the routes to market, the applications, the technology that this is 50 years of investment Huntsman have made in those areas and those are not easily replicated.
P.J. Juvekar - Citigroup Inc, Research Division
And just secondly, you talked about natural gas advantage in MDI. Can you quantify what advantage do you have at Geismar? And what can you do to take further advantage of that?
Anthony P. Hankins
Well, that's something that we're looking at, P.J. I mean, that's a really good question and it's something that we, strategically we're looking very hard at now in terms of what long term and sustainable advantage and why give it in Geismar and how best can we capitalize on that? And I think that's something I'd like to come back to this group on at a later date when we've fully thought that through.
Peter R. Huntsman
P.J., there are also -- to be honest, there are also some competitive implications that I think that we've, perhaps, maybe a bit reticent to share. And I would say that as we look at the economics today at Geismar, it makes sense to send MDI precursor to markets in Asia and have that precursor further purified and refined in a splitter in Asia and sold into the Asian market. And so the difference in freight is more than being made up by raw materials and by product to credit values that are coming out of Geismar. Now it's exactly down to the penny per pound advantage that is there. I would say at this point that it's significant. That's bigger than the bread box, I know, but I apologize.
Let's move on to the next presentation here. Tony, thank you very much and Stu Monteith, our Divisional President for Performance Products.
Stewart A. Monteith
Good morning. My name is Stu Monteith, and I have the great fortune of managing the Performance Products division within Huntsman. And hopefully, over the next 30 to 40 minutes, I'm going to give you an appreciation for what is the makeup of our division, as well as share with you some of the excitement we have about the division and its future going forward.
If you look at the Performance Products division, it exceeds $3 billion in sales and in 2011, generated about $374 million of EBITDA. We sell about 2,000 products to about 4,000 customers. And the production of those products come from 17 manufacturing facilities that we have around the world, and 3 operating joint ventures. And we take those products in that 7 billion pounds of capacity and we bring them to a diverse number of different market applications in end markets.
It's interesting to note that about 60% of the EBITDA generation from this division comes from product lines where we're either #1 or #2 in the world in terms of market position.
If we look at the division, it's simply made up of 3 different product lines, amines, surfactants and maleic anhydride. And we characterize those by their specialty or intermediates, depending upon the great degree of derivatization or the sophistication of the market applications, or the corresponding profitability. And we take these products and we go to the marketplace through 6 global business units. The first one being our homecare and fabric care markets and skincare markets in the personal care. Then we have a business that goes into the agrochemicals segment.
The next business unit we have is process chemistry. And that would involve market segments like mining, electronics, water treatment, leather and textile. The next division our business unit we would have would be our materials. And that would be the markets that include things like coatings and adhesives and sealants and in unsaturated polyester resins. And followed by our energy business, which is typically oilfield chemicals, chemicals that go into wind energy, enhance flow recovery, solar panels, energy storage like lithium ion batteries. And then lastly, we have our additives business, which would include market segments like lube additives, urethane additives, fuel additives and what we sell into food and concrete and asphalt.
If you look at this business, since 1993, it's been a business that's been able to grow about 18% per year. And if you look at the early part of the growth of this division, you see it characterized by a lot of inorganic growth, a lot of acquisitions. And as you take a look at that early part of our history. You can recognize a lot of common chemical companies names and assets that we purchased at that time that make up the portfolio of what we have. But if you look at the last 10 years, you see it's a different story. With the exception of our purchase last year in 2011 of the small Indian amines and surfactant company called Alphonse in India, the growth over the last 10 years, it's been one of organic growth. It's been the one growing the portfolio. It's been of one getting the return on the investments that we've made, and even considerable, over the last 10 years. We've invested nearly $540 million of capital investment into this business. And I draw your attention to a couple up there that I think are our particular interest. In 2007, we built our first amines facility in Asia to sort of satisfy and participate in the Asian growth.
In 2010 and 2011, we spent a considerable amount of money in our maleic anhydride business, which I'll talk a little bit later about. We wanted to build another facility in the United States in Geismar, Louisiana, a twin to our Pensacola facility. And we also doubled our capacity in Europe from maleic anhydride.
In 2010, we were the first chemical company to ever build an amines manufacturing facility in the Middle East. We did this to an off balance sheet investment, with a joint venture partner. $290 million investment, the offtake of which primarily goes to meet the Asian demand.
So when we look at amines, it's certainly complicated chemistry, but I think if you look at the end-used benefits behind them, it's really quite simplistic. They either protect, they either clean or they either strengthen. They're used in a variety of different market applications. They're used in herbicide applications. They help in the delivery of the active product to the crop to improve the efficacy. They help out the active product to spread better, to let better, to penetrate the crop leaf. They're used in fuel additive applications for things like detergents. They're used in the production of silicon wafers as a solvent to clean up photo-resistant film. When you land in Logan airport in Boston and you go through the tunnel into the city, there's a polyurea coating that's on the inside of that for weatherproofing characteristics. Or if you look at the Superdome after the Hurricane Katrina, as they refurbished that, the coating they put over the dome was a polyurea coating made with our amines.
It's also used in interesting applications like windmill blades, and we'll talk a little bit about that. It provides unique curing properties that allows you to build longer and longer blades which is the trend in the industry. And it's also used in products that you would use at home, whether it'd be Bounty or napkins or paper towels in the restrooms. The reason they don't disintegrate when you dry your hands is because they contain a wet-strength resin made of polyamide which is the amines.
So when we look at amines, we feel that we are the world's leader in terms of amine chemistry, both in respect to the breadth of our portfolio, the breadth of our technology and also the global asset base that we have in this business. And you can see, we've spent a considerable amount of money in our amines business to foster the growth that we see. We've mentioned a number of these investments in one of the previous slides. So I'll draw your attention to 2 of our forward investments in 2014. We're looking at doubling our capacity of our Singapore plant because of the growth and demand that's existing over there in Asia, another $80 million investment, which is in our capital plan for 2013 and '14.
We're also expanding our position in the Middle East where we're going to build another plant, off-balance sheet investment with our same joint venture partner right next to the plant that we have, which is going to be an investment of about $150 million to $200 million. So if you look at that, in the amines area alone, we will have spent over this time period 2007 to start up in 2014, so I can put 2014 somewhere in the neighborhood of $600 million to $650 million in investment in this very strategic product line within our portfolio. Highly profitable products, some neighboring clearly in the 15% to 20% EBITDA range, higher-than-typical GDP rates in a number of the applications, and has an appreciable barrier, I think, for new competitive entrants both in terms of the investment that's required to get into this, as well as the access to the process chemistry that you will need to have to get it into this business.
And we have a global asset plan. We produce these amines at 9 different plants around the world stretching from Singapore to Saudi Arabia to Conroe, Texas. We have about 1.3 billion pounds of capacity. And we feel we're the lowest producer in terms of cost position globally, either because of where we have our plants located or because of the proprietary technology that we practice or because the sheer economies of sizes of the assets that we have.
So innovation has been a big part of the growth of this business. And it's allowed us to extend ourselves into some of the markets that we heretofore have not been involved in. One of the good things, strong points of our business, is our ability to twist and bend and contort amine molecules to get the desired end-use benefits that our customers are looking for. If you can remember, on one of our previous slides, we go into a diverse number of market segments. And we just do not have the resources to be experts in all of those applications. Some yes, but many no. And so what we do is we partner up with a lot of our customers to be their front-end development area for bending and twisting molecules to be able to get the benefits that they're looking for, the competitive advantages that they're looking for.
So what we've listed for you in this slide is a number of product substitution successes we've had over the years where we have displaced other functional chemistries that were previously being used as we grow our portfolio. And we listed some of the volume so you can kind of get a dimensional appreciation for the volume associated with these product substitution wins. But we've also identified for you, in 2012, what would be the contribution margin that comes from these particular product substitutions? About $100 million in 2012, which is about 1/3 of the contribution margin this division will make in 2012.
So if you look at amines, I'll draw your attention to the lower left-hand corner, you can see since 2000, amines product line for us has historically and very consistently grown in its earnings, at a rate of about 19% per year. I do, however, want to pause and just speak briefly to 2010 and 2011 and 2012. Because you can see in 2010 we had an incredibly very effective year. A couple of phenomena were occurring at that point. The ethyleneamine market, one of the product lines that we sell, #1 in the world in merchant market, was in an oversold environment. All the producers were running full out, and as a consequence of that, we had a record-setting year for ethyleneamines business.
At the same time, there was another record setting phenomena that was occurring, and it was wind installation that was occurring in China. If you looked at the China wind installation business, it was growing at a superheated pace. And many of us wondered if this was going to be a sustainable pace for this particular industry in China. The answer to that question comes in 2011. When we get to 2011, in ethyleneamines because of the tight demand, we see a number of competitive expansions come onto the marketplace. One is ourselves. It's the investment in Saudi, we realized the first full year benefit of our ethyleneamine plant in Saudi Arabia. But we also see competitors, 3 competitors add capacity into the marketplace. And we see the operating rates go from 100% to about 85%. And we see the profitability for that particular business become moderated.
Coming back into the wind industry, China takes a look around and finds out that the number of the wind installations that they have in place are not connected to the grid. They literally have wind farms, 1 year's inventory of wind farms that aren't even connected to the utility grid. And they decide it's best to slowdown the production of windmill blades except for those that go to the export market. And pause and digest, and spend money connecting up to the grid. So we saw the amines and the voracious appetite that this industry has for amines just drop like a stone particularly in the fourth quarter of last year.
We also saw high-speed rail slow down. As you may recall, high-speed rail, there was an accident that's occurred in China on high-speed rail line between Beijing and Shanghai, and they brought high-speed rail to a halt as they tried to better understand the safety of high-speed rail. At the same there was a growing concern about the corruption that existed in terms of letting out the bids. So we saw a slowdown in this particular market segment as well.
So now we find ourselves in 2012, how do we look at the world of ethyleneamine? Well, we see a resumption of the ethyleneamine profitability growth starting to come back as we see the demand start to chew into the excess capacity and operating rates start to increase. We look at wind energy. Still healthy around the world, growing at around 7%. Very strong in North America, very strong in Europe, and will again resume to kind of its 14,000-megawatt installation rate that it has historically been at, but it will come in the second quarter or late second quarter.
And we see high-speed rail coming back in China as well. It's part of the 5-year plan, they will continue to execute the growth of the rail infrastructure as they recognized in their economic plan. So we see the amines business coming back to what we've historically experienced with this business. We see it coming back to again an aggregate growth rate at about 19% per year.
So what do surfactants do? Well, they simply clean, they simply disperse and emulsify. They're a key component in all the major detergent brands that you see on the shelves. They are also used in lube oil additives to help those packages stay in suspension with very complex formulations. They're used in the paper industry and paper processing to defoam. They're used in recycled paper industry to de-ink. They're also used in agrochemical applications as well as we mentioned previously.
Surfactants is a global business for us we have -- note that there 10 plants around the world. We produce nearly 3 billion-pound pounds of products. The production facility is planned from Europe -- I mean from Australia to Barcelona to Port Neches, Texas.
We've been able to take advantage of our markets to channel and our global asset base to be able to take advantage of the long-standing relationships we have at multinationals, and we've been able to shift this portfolio more towards specialty business. As I draw your attention to the lower right-hand corner, and you can see over this time period, of the last 8-year horizon, we've been able to not only change the makeup in terms of contribution margin per pound, but we've been able to increase the total contribution generation by about 5% per year. And coming back to the point that Peter has made earlier, we are advantaged by the ethane position and the feedstock position here in the U.S. Gulf Coast.
Our surfactants, 60% of the raw material cost are ethane-based. And we are back-integrated. We have a highly energy-efficient ethane cracker in Port Neches, Texas, which feeds 2 ethylene oxide reactors, about 1 billion pounds in terms of capacity, which then we derivatized into further products. We've seen a lot of ethylene expansion, but you have not seen any announcements on EO capacity. And it's relatively balanced, I think going to be tight in the next several years.
So if you look at the roll-through EBITDA in our surfactant products, it runs at a close to about 15% EBITDA margin.
Let me introduce you to maleic anhydride. Like amines, it's one of the strengths of our portfolio. We're the largest supplier of maleic anhydride in the world, goes into a number of different markets, but about half of that would be the unsaturated polyester resin market. We're the lowest cost producers in both Europe and in the United States and we've been able to parlay that into market-leading share positions in both of those regions as well. We're the largest -- we have the largest capacity in the world. And as we talk about unsaturated polyester resin, a big part of that, of course, is the housing industry and in the automotive industry. And as housing starts recover as we've mentioned previously in some of the earlier presentations, we feel this business has the ability -- because of tightening supply and demand, another headspace ability to generate about $20 million to $25 million of additional EBITDA part of this business.
And it's worth mentioning not only do we sell maleic, but we also license the processing catalyst and sell maleic catalysts into the market as well, which gives us an additional income revenue stream.
So as this business continues to grow into the future, part of it will be fueled by some of the growth in the emerging markets. As we take a look at the EBITDA generation in Asia alone, it grew to something like 48% up to 2010, and we've mentioned some of the phenomena that occurred in 2011.
But a lot of this will be fueled by the China 5-year plan. If you look at that debt plan and you look at the market segments that is identified that it will resource and develop, a lot of those go right into the flywheel of where we participate in terms of infrastructure, energy and in transportation.
In India, very similar to China, but perhaps further back in the developmental cycle, spending money in the same market segments. And I think we're going to see the domestic demand for that increase with the emergence of the middle class as well. And with the acquisition we made in 2011, we feel we're uniquely placed to grow that platform.
You all are well familiar with the infrastructure growth in China, so we won't spend a lot of time on this. But obviously, the biggest producers of concrete and the biggest consumers of concrete, half the world's dams are in China, and their plans are very ambitious to continue growing in that area. If you look at the infrastructure spends, it's just staggering in terms of their appetite. In 2004, they have consumed somewhere around 4 billion tons of concrete. Amines and surfactants are used to help improve the fallibility properties there, particularly of superplasticizers. This generates market demand of somewhere between 55 billion pounds of amines and surfactants of which our share would be about 20 billion pounds.
And of course, China is planning on spending another $300 billion of investment to grow its rail structure. By 2020, it says it'll have 120,000 kilometers of rail infrastructure in line. 16,000 of that would be high-speed rail because of topography in China, they're going to require a lot of bridges. And that's where our interest lies, in the waterproofing of the bridge decking that would go along with that high-speed rail maturation.
So we see this equating to about 24 million pounds of additional amines. As they continue to grow their energy to meet their needs, of course, they are investing heavily in wind energy, and we've referred to that earlier. Typically, the growth for that is about 14,000 megawatts of expansion in less than 10,000 turbines. A big consumer of amines, we have about 85% of the market in that particular market segment.
In India, casting some of the same growth shadows and characteristics that we see with China is continuing to grow. Statistics show that between 2003 and 2013, 80 million households will achieve medium -- middle-class economic status, and with that will come the growth in chemical consumption per capita. And again with our acquisition, we have the ability now in an environment in the region that is very, very conscious of constructing barriers for exports through duties to be able to produce in that particular country and to participate in the growth.
So if you look at the financial performance, if we look in the bottom left-hand corner, you can see a business that over the last 9 years, 7 years have continued to set new record standards for this business. And if you take out the recession area, it will be 7 out of the 8. Last year not being an exception, another record performance in terms of EBITDA generation for this division.
If you look over in the right-hand corner, a breakdown over the quarterly performance, I'll draw your attention to the 2 book-ins for 2011, the first quarter a little stronger, a little bit of an outlier for this business because we benefited from a force majeure situation. We now have some difficulty in Louisiana with a surfactant production. And under force majeure, we were able to take advantage of the market condition.
If we look at the fourth quarter, we always have seasonality. We saw a little bit more destocking -- a lot more destocking than we typically have, and we saw the manifestation in the fourth quarter of the ethyleneamine capacity issue that I mentioned, as well as a significant drop-off demand in wind and high-speed rail. But it is the division that if you look has a lot of the historical or in trends that you kind of look for in the business, the business that grows top line and as the direct cost continue to increase, we're able to digest those and still grow the contribution margin and EBITDA for this business.
So as we look at this division, how do we look at it within corporation? It's one of the growth engines. We expect the growth to continue, buoyed up by some of the growth and some of those applications we've mentioned in the emerging markets previously. We feel we're still going to be continually successful in innovating and getting ourselves in to new market areas and to extend the product lines that we have. We expect to have a continuing positive return on the investments that we have as well as the ones we're making into the near future. We're going to take advantage and exploit our particularly strong position in amines and maleic anhydride.
And always, over the next several years, take advantage of this phenomenon that's occurring in the U.S. Gulf Coast on feedstock advantages and benefits. And as housing recovers, we have the ability to lift the margin generation and earnings generation off of our maleic anhydride.
So as we take advantage of our global asset base and we take advantage of the unique products that we can bring to a number of the markets, the market-facing organization where we can bundle our unique offerings of surfactants, maleic and amines, we feel we're well-staged to grow into the future.
So thank you and I'll be pleased to take any questions that you might have.
Stewart A. Monteith
Could you bridge from the $600 million to $650 million of capital investment in amines to a return on capital when it's fully loaded? Or to put it another way, with about half of that coming on at around 2014, 2015, how much of that -- or how much of the lift to the peak EBITDA is just because of the new amine capacity is coming on and how much is due to other cyclical factors?
Stewart A. Monteith
Okay. We usually -- I'd say our largest projects have unleveraged IRR's in excess of 20%. I can't think of any of these projects that we approved and have done that were below 20% unleveraged. As it relates to new capacity coming on really all of the projects we have built were on in 2011. I don't think we have anything new coming on.
Peter R. Huntsman
That's right. When we look at the peak earnings for this business, none of it reflects what we expect to get out of that in our peak earnings. So it doesn't reflect the new expansions that we have in place or planning to put in place.
Any other questions or comments?
Peter R. Huntsman
Stu, thank you very much. And I think that we're just running on time here. So before I turn it over to Advanced Materials, my brother, James. Why don't we just take just 5 minutes. We literally will be starting again in 5 minutes, whether people are back or not. So we'll go from there. Thank you.
Peter R. Huntsman
Ladies and gentlemen, if you'll take your seats, we'll go ahead and get started here.
Yes, the next business that we're going to be presenting is our Advanced Materials division. As of this past summer, we've put in a new Divisional President. Somebody that I have a great deal of confidence and somebody that I also expect to change the overall direction of this business. And I think you'll see that -- the results of that coming quite quickly.
Without further ado, I'll introduce our Divisional President, Mr. James Huntsman.
James H. Huntsman
As I was coming up to the stage, my brother said I mixed up all of your notes up on this podium here, so I'm trying to unscramble, but thank you, Peter.
It's a pleasure to spend a few minutes with you this morning to discuss Advanced Materials. I basically like to break down my presentation into 3 sections. I'd like to explain a little bit about what we do because some of you might be wondering what it is that we do with Advanced Materials.
I'd like to spend the lion's share of our discussion here this morning on what we're doing to reverse the declining earnings that we have seen 5 out of the last 6 quarters. And then lastly, we'd like to highlight just a couple of the exciting markets that we are entering into or we currently participate.
Okay. So here is basically, similar to the other presentations, a breakdown of sort of an overview of our division. And I just want to point out a couple of things. In the top left-hand corner, you see the end markets.
Basically the Advanced Materials is our liquid epoxy resin division. Liquid epoxy resin is the primary chemistry that we deal with, but it is not the only one. The liquid epoxy market is about a 4 billion-pound market, and half of which goes into paints, coatings and construction.
But our portfolio is a little more diverse than just that. And I just like to highlight a couple of areas where we have -- where we are diversified towards more higher-end applications, higher-margin applications. And that would be in the field of aerospace, in adhesives, in electronics and also in energy. And by energy, not only that wind energy but that's industrial power. And we'll talk a little bit about that in just a minute.
The competitive landscape, as you can see down there below, the one item I would mentioned there is that the Hexion bubble should read Momentive. And really it's -- Dow, Momentive and Huntsman are the 3 companies that really span the breadth of liquid epoxy resins, components and formulations that really do, 3. But where Huntsman further differentiates itself from Dow and Momentive where they're more focused upstream, Huntsman's strength really lies downstream.
The global footprint there, you'll see here like the other divisions, we have a very nice global footprint. And as my father stressed, very, very important for Advanced Materials, because not only are those manufacturing sites for us, those are also technical centers, marketing, sales, customer service. And when you're trying to differentiate ourself in the world of epoxy and epoxy derivatives. It's absolutely critical that you have the depth and scale to be able to be close to your customers to provide on-site and local support.
Let's move on to Slide 2. These are our business segments, and this is how you'll see our P&L. Base resins, specialty components, formulations to take away from this slide here is diverse chemistry. There's nobody in the competitive landscape where we participate in markets with other people that have the diversity of chemistries that we deal with. And you can see there, epoxy is the lion's share of what we do. But we also do much more. Basically, the base resins, the first column there, that is primarily our liquid epoxy resins business. And as you move further down into specialty components high-performance epoxies is where you'll find our aerospace business, for example. And down into formulations that's where you'll find our adhesives business. Basically the earnings breakdown between the 3 is about 10% in base resins, about 40% in specialty components, and about 50% in formulations.
Formulations is the foundation of our business. It's really where we want to and see and expect a lot of our growth. That's where we have intimacy with a large, diverse field of customers, with a large diverse number of applications. Huntsman Advanced Materials, probably generally isn't your supplier for large volumes of liquid epoxy resins. About 1/3 of our resin we sell externally to the market, 2/3 of it we keep internally to add value and to provide solutions for our customers moving down the value chain.
End markets. The previous slide highlighted our diversity with chemistry. What you should take away from the slide is flexibility. And you can see here the different markets we serve and how they spread out over our business segments. And what that means, for example, when you look at construction, we'll go to a particular customer. We might sell them a liquid epoxy resin and base resins; we might sell them a component, which might be a hardener or a specialty epoxy; or we might formulate for them. It depends on their application. It depends on the region. It depends on their particular needs.
Now that flexibility provides -- enables us to have great advantage over other people in this space. And the other thing that this does is once the customer comes in to see one of the things we do, they generally are impressed or have other opportunities to do business once they come in and see the breadth of products and solutions and chemistries that we offer across the field.
Let's move on to the next slide. I think I'm the only one that's presenting today, other than my father who didn't have any slide, that has a slide with no pictures, no colors and no graphs. So this is probably, visually, the boring-est slide that you'll see today. However, it is the heart of my presentation. Building towards the future. There is no doubt, you've seen the earnings within Advanced Materials, and as we've mentioned, 5 of the last 6 quarters have been declining margins, declining earnings. And we've had headwinds. Currency, as we've discussed, has been an issue, about $22 million per year of currency headwind for this division.
Fixed costs. During this period of time, our costs have crept up and the market hasn't been particularly nice to us. So what are we doing to address those issues so that we can thrive in this current business environment? We're having our focus on 2 areas, costs and volumes. In the area of cost here, Peter already mentioned within our division, $25 million of restructuring that has largely been completed, largely been implemented. But further than that, we anticipate an additional savings in the area of manufacturing and also within working capital. Within manufacturing, for example, we're utilizing our global footprint in that we're moving production out of more expensive areas and facilities like Switzerland to more less expensive facilities and closer to the customers, for example, moving things, production over to China or moving production up to the U.K. as an example. So that's an area of focus, cost, it will continue to be going forward.
Now going -- looking at the other areas, customer focus. I don't want to have pricing on there. Pricing doesn't necessarily mean we're going to go in and undercut and buy our way in. We don't have to do that. We can be competitive with the market and offer technical support and product innovation and a diverse chemistry and a flexible portfolio, which will win the business. And we've been doing this for many, many years, and many of our customers have been doing business with Huntsman in the area of Advanced Materials for many decades, long-term, long-standing relationships. Product innovation and new market growth opportunities are going to be key. Let me just give you a couple of examples.
Product innovation. I suspect that everyone in this room knows what this is with the exception of my father. I'm not sure he knows one of these. It might have been before his time. Dad, you know that? Okay. This is a printed circuitboard. Now these are basically everywhere. Anything that plugs into a wall or has a battery will have one of these particular devices: Kitchen appliances; automobiles; your handheld devices where you probably, yesterday, tried to order an iPad, the new iPad, and like I did, failed, you weren't able to get through. It contains one of these devices. Now the key feature in this is that it has to be flame retardant. And when you strip all the electrical components off here, basically, you have a composite part that consists of a resin and of a glass fiber. And again, it has to be flame retardant. Unfortunately, the current product used in the market today is toxic when you dispose of it. So generally, these things, when you dispose it, they burn. And when they burn, they release some forms of toxins.
Well, we have developed a product that's non-epoxy technology, it’s the benzoxazine, and it is flame retardant. It is non-toxic when it's disposed of, and it's heat-resistant. So as these devices get smaller and smaller and smaller, heat resistance becomes absolutely critical. So this is an area within our benzoxazine resin, our benzoxazine technology, where we think that there's terrific advantage and terrific opportunity. And focusing on our core strengths, this, we do very well. Stereolithography, the divestiture, nice business, nice margins, but it wasn't our core, it wasn't our strength. So we made the divestiture, $41 million.
Aerospace and defense. This is clearly, as we've said before, the strongest product line in Advanced Materials. Now the use of composites, as we all know, has increased in the use of commercial airplanes since the mid-1990s. If any of you have ever flown on the Boeing 777, the vertical stabilizer or the tailfin at the end of the fuselage was the first primary structure that was made of composites early in the mid-1990s. Since that time, the use of composites in Aerospace has increased that today, we're about just over 50%. It's a fantastic, fantastic business. And when you look at this, you see the Airbus 380, the Boeing 787 and the Airbus 350. Now these particular -- the current build rate for these planes all combined is about 7 per month. Seven of these planes per month are built. Over the next couple of years, that 7 per month build rate as a combined aggregate of those 3 planes which consume the highest volumes of our resin, anywhere from 14 to 18 tons per plane, will increase to 24 planes per month. A terrific, terrific business, great growth profile. In fact, I brought with me one of these, the hockey stick. And I brought a hockey stick for 2 reasons. Number one, this is one of our applications. We sell our resins into the sporting industry: Hockey sticks, bows and arrows, tennis rackets, et cetera. But also to remind us that in business, there are truly hockey stick type businesses, and the Aerospace business is one of those. When you look at the build rate for these original equipment manufacturers, it's very, very optimistic and very, very exciting when you consider it.
Automotive, let me just touch briefly on Automotive. Much like the aerospace industry when the use of composites started in defense and moved to commercial airplanes, the automotive industry, the use of composites started a number of years ago in the F1 high-performance cars. And when we were here a couple of years ago, we were excited to sort of talk about the supercars and how they were using composites in the panels and then in the construction of the vehicle, which surrounds the polyurethanes that Tony talked about. We now are on the verge of something even more exciting in that we're moving towards use of composites into high number of production vehicles, and we're just on the verge of doing this. Over the next couple of years, the automotive industry is going to really determine the amount of composites that go into these particular applications into particular market. And when you look at epoxy resins, of course, it's lighter weight, corrosion-resistant, and on the manufacturing side, you can sometimes use one composite part to replace 2 or 3 parts that the automotive manufacturers used to use to build cars.
Lastly, let me just touch on adhesives. This is a terrific market for us. Those of you that were able to pick up a T-shirt, you were probably handed one of these little devices here. This is an example of our DIY adhesive product line, which means Do-It-Yourself. When you think of Advanced Materials adhesives, think of us in 3 different ways: Aerospace, which we've already discussed; DIY, which our biggest market is currently in India and we expect that business to triple over the next 18 months; and lastly would be in general industrial adhesives. And really, the great opportunity there aside from organic growth is replacement. So those of you that have seen these giant school buses, we've all seen them driving around and shuttling kids and people overall all over the place. Right now, the industry now is shifting away from rivets and welds and assembling those buses and using adhesives. It's a terrific opportunity. Some of these companies build 29 or 30 of these buses a month, and it presents a terrific substitution opportunity for our business.
Financial performance here. As everyone else has had these slides, let me just make mention of the top left -- the top right-hand corner with the green line, which basically talks -- shows our contribution margin. And you can see over the last couple of years, our contribution margin has been fairly stable. In fact, it's gone up a little bit in recent years. The issue for us, as we've discussed, is cost and volumes. And our volumes in 2011 were off about 8% versus 2010. And our cost in that period of time has crept up.
The second point I want to make on this slide is on the bottom right, when you look at our quarterly adjusted EBITDA, that's the decline I was talking about, 5 of the last 6 quarters. We expect Q1 to be an improvement over Q4 of 2011, number one. Number two, to reconfirm what Peter and Kimo said earlier, we expect 2012 to be an improvement over 2011. Lastly, our foundations, we discussed our continuing focus on creating value, managing costs, utilizing our global footprint in terms of manufacturing, marketing, technical expertise and technology know-how to focus on our core businesses and to win business and to increase our volumes across-the-board. First, we have a long list of strong competencies. We've been in this business, Advance Materials, selling epoxies and other formulations and other chemistries for a long, long time. And we have a terrific name recognition out there in the market. And we believe we're well positioned to take advantage of these opportunities, which we're going to be faced with. So that being said, I'll turn it over and open the floor for any Q&A, should you have any. And don't forget to get one of these on your way out. You'll be surprised at how many things you'll be able to glue together when you go home. And you'll be the fan in your home because you can fix all these little honey-dos that you have in your front entryway. Okay. Questions? Comments?Excellent. Oh, I almost got off. Yes, sir?
Just on the -- David Troy [ph] with Lazard. In the automotive applications, you're kind of moving from high-end, very specialty applications, and you're beginning, as you pointed out, to encroach on kind of high-end but regular automobiles. What is the obstacle to being able to service that, the entire market with, on the entire automobile market with composites? Is it cost-based or performance-based?
James H. Huntsman
There are 2 issues. One would be costs, and number two is in the actual assembly in the production of vehicles. Aluminum, which is the preferred metal, is easier to do, but the automotive industry like the power industry and like the aerospace industry that we serve are very conservative industries. They're very averse to change. And so, these things take a long period of time, and ultimately, it's going to be the end of the consumer that's going to decide. But our composite materials are more expensive, currently. Over time, they might, like most things, they might become cheaper. And it's an issue around pure time, for example. How many parts you can assemble and how quickly you can assemble vehicles. And so for us as a supplier into that, that's something that we're currently working with our customers to solve those particular issues. We think that ultimately, we can get around them, but at the end of the day, it's going to be the consumer who decides if they really want to, at least in the short term, drive around in a car that is a composite car. Now there are a number of automotive companies that are currently making the bet that plenty of you will be doing that. The question is just how far that then goes down into the automotive model situation -- chain. So those are the 2 issues.
And then in Aerospace or the jets, could you just repeat what you said the build rate could go to from 7? And then over what time period and when will you expect to be at those build rates?
James H. Huntsman
Well, the current -- when we look at the -- those last 3 in question, this is -- the Airbus 380, which is the double-decker, which you've probably seen occasionally flying in and out of New York. The current build rate is about 2.5 planes per month. Airbus would like to get to 4 planes per month probably in the next 12 to 18 months. The 787, which is the new commercial airline that Boeing is just introducing into the market after a number of delays, well-publicized delays, their current build rate is about 4 per month. They would like to be at 10 by the end of next year. And lastly, at the 350, which is the plane that's currently under development, and the stated build rate for that particular plane is also 10. And I would expect that they would be at those levels, 3.5 years. It just depends on the development of this particular product. I mean if there have been some delays, the question will be are they going to be the number of delays that Boeing saw with the 787 or are they going to be something shorter because of the lessons learned that the industry has seen with Boeing's issues. So I would think over the next few years, probably every quarter, you're going to see that build rate just kind of inch up until it gets to a level of about 24 planes per month in aggregate for all 3.
Peter R. Huntsman
Let me just state as well, too. As you see a doubling of the aircraft being manufactured that are large consumers of carbon composite materials, don't expect that you'll see a doubling of profitability. The products that we're supplying in the epoxy resins that are going into these larger scale applications is just one of the end-use applications. We also provide a lot of the adhesives going to existing, and typically, those smaller adhesive applications have a much wider profit margin. So if we talk about a doubling of our business, it doesn't necessarily extrapolate into a doubling of -- we talked about doubling volume. That's necessarily a doubling of volume of all the products across-the-board. We definitely will see an improvement of profitability across-the-board as we see this increased demand of aircraft being built, but it's going to be a bit of engineering to perhaps model that correctly.
Robert Koort - Goldman Sachs Group Inc., Research Division
James, Bob Koort from Goldman. You've got a division, Advanced Materials, that sounds pretty sexy but has pretty terrible margins. And I suspect part of that's because of liquid epoxy. So is that an industry structural issue? You said you used 2/3 internally. Do you buy it from somebody else that's got pretty poor margins too to help the industry? And what would the margin be if the balance of the business, if you got an 11% EBITDA overall or 8% EBITDA overall?
James H. Huntsman
Well, the lion share of the profitability would sit with the specialty components and the formulator resins. I'm not sure if I understood your earlier question with regard to do we buy...
Robert Koort - Goldman Sachs Group Inc., Research Division
Well, my point is if you're -- if you have such poor margins in liquid epoxies and you're selling merchant epoxy, maybe you could shut down something and buy from somebody else that's got a equally poor margin. And again, what would the EBITDA margins be in the specialty and formulation businesses?
James H. Huntsman
EBITDA margins for those particular businesses would probably be in the mid to upper teens. And then the liquid epoxy resin, which lately has been a little problematic, but it was just in the first half of 2010 when the liquid epoxy resin was as strong as it's been in probably 4 or 5 years. A combination of high wins in China coupled with severe pressure and availability of the precursors going into liquid epoxy resins, preliminary -- primarily epochlorohydrant [ph].
Peter R. Huntsman
Bob, on average our -- a lot of the bulk liquid resins markets are covering their cash cost, these are not facilities that we would go out and expand. We purchase them unappreciated. We believe that the product that's being sourced from those materials is better than what we can secure on the open market. We're well-balanced in North America, well-balanced in Europe, and we're buyers in Asia. And we'll probably remain buyers in Asia. So this would be an end of the business we aren't going to be investing a lot of money in. Maintaining it, yes; building it, no. The focus would be on that downstream differentiated side.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Frank Mitsch, Wells Fargo.
James, love the hockey stick. Going back to your boring slide, you have $60 million of cost savings, I believe, to be realized over the next 20 months until the end of next year, is that correct?
James H. Huntsman
18 to 24 months, yes.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Okay, great. When you're finished with that program, this business had been kind of flatline EBITDA, earnings of about $150 million for several years during the 2000s. Do you anticipate when you're done with that program that, that's where we should be thinking about this business performing?
James H. Huntsman
Well, I would like to think with the number of higher growth -- look, part of our portfolio, as we've discussed earlier, is liquid epoxy resin. And that's kind of a GDP type growth business. But if you look at where we want the business to be in 2012, '13 and'14, it's going to be a higher percentage of the business that's going to be exposed to Aerospace, adhesive, power, these types of applications. So I would -- my expectation would be that once we have those cost synergies, we have the correct cost position and we have the correct volume position and we're focused on those areas where we think is core, we would expect that, that sort of 150 plateau would be something of the past.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
So it will be higher?
James H. Huntsman
Peter R. Huntsman
Frank, I see no reason why this business should not, on a regular run-rate basis, 24 months from now, would be doing better than 150. We need to prove it, but that seems to be something of a sound barrier for this business for some reason, and it's capable of doing better than that. That's correct.
James H. Huntsman
Okay, ladies and gentlemen, thank you very much for time. I think then I will turn it now over to Paul Hulme. And Paul, take the stage. Thank you.
Paul G. Hulme
Good morning. It's great to see you guys here today. It's my pleasure to give you a short overview of the Textile Effects. And as Peter said this morning, the only way is up. Unfortunately, like James, I do not have a hockey stick. But I do have a very robust and very good business line and a very clear strategy. So let me give you an insight to where this business is going.
In terms of negative EBITDA of 2011, the restructuring plans that we've announced will see this business return to sustainable positive EBITDA of the next 12 to 18 months. If you look at the top left-hand corner, the markets that we serve are like our other divisions, this is a business that is very much a consumer-driven business. I think we all recognize in the last couple of years, whether it's in Europe, whether it's here in the U.S., the consumer confidence and sentiments have been low, and that's had an impact throughout the textile industry. But we see many opportunities, exciting opportunities where we can continue to grow our business. On the bottom left-hand corner, the competitive landscape. I'll just point out there that Huntsman is the dominant player in dyes and chemicals. So approximately, 55% of our products today are dyes, 45% are chemicals. The only competitor who comes anywhere near that is Clariant, who is predominant with chemicals. They have some, what we call dot [ph] dyes, which are commodity dyes for the denim industry. They have some dispersed dyes for man-made fiber. So when you look at all the other players, the Chinese competitors, the Indian competitors, they're either dye producers or chemical producers. So the zone where predominantly, where Huntsman will bring the solution package to our customers.
As I look at the textile industry and look at the change that's taken place in the last 2 decades, we all recognize this as an industry that's migrated from west to east. And when I look at this industry today, I see some significant changes that will present opportunity for ourselves in Huntsman Textile Effects. And I'll make comments on those as I go through the presentation.
When you think about the Textile Effect business, I would ask you to think about this, this is not simply a dye producer and a chemical producer. Whilst we are the largest dye producer for the textile industry, what we bring to our customers is a solution package. So we work with our customers from pretreatment to finishing, be it bringing chemicals, bringing dyes and achieving the end result that the customer is seeking. And we have many, many direct relationships with direct customers. We also work, which is a feature of the TE business, we work with our customers' customer. And you can see on the right-hand side, we have many programs in place where we are working with the brands and the retailers, and I'll give you some examples later in the presentation.
One of the changes that we are seeing in this industry is particularly from the brands and the retailers. The brands and the retailers now demonstrate and they drive the need to put in place a robust sustainability program. And what this actually means is for the first time, maybe for 2 decades or more, as the brands and retailers take in the responsibility on much more ownership for what their suppliers, the mills are doing, particularly those mills and suppliers in Asia, and to make sure that they can actually stand by their sustainability policy, make sure that the mills are in compliance in terms of the environmental legislation, in terms of materials that they're using. And we've seen a recent example where Greenpeace had audited a major mill in China and identified, if you like, some of the materials being used and discharged through the ethylan, if you like, noncompliant materials. And that mill was a major supplier to one of the leading brands. The brand responded immediately. They see that the publicity tarnished, if you like, their image, their brand image, and we saw some very swift action. And what we're seeing today, and this is one of the opportunities and changes, is the establishment of a sustainability of power coalition. And this is over 70% of the world's leading brands, finally getting together to agree industry standards. And Huntsman Textile Effects has been invited as the only chemical producer to join the coalition. And we will advise in terms of dyes and chemicals. We see this as very important. This is, again, the brands and retailers taking responsibility and this will, in fact, benefit ourselves from relationships we have with these brands and retailers.
When I look at the competitive landscape, Huntsman, we are by far the #1 in terms of dyes and chemicals. Our nearest competitor is Clariant, and then our third international competitor was DyStar. Those of you who follow the textile industry, you have seen that DyStar was acquired back in late 2009 by an Indian company, Kiri, and that has further changed where Kiri DyStar is now being consumed into one of the Chinese competitors, Longsheng. It was the major equity owner of Kiri DyStar. So what we're seeing from our competitive landscape is quite significant change here where one of our international competitors is being consumed by a local Chinese producer. And we have seen public statements from Clariant that their textile business is nonstrategic and may be subject to divestment over the next 12, 18 months. So again, a very dynamic and changing landscape. And on the left-hand side, to give you an example in terms of the -- where we play as Huntsman, we actually focus very much at the top of the pyramid to specialties and the top end of semi-specialties. That's where our customers value the innovation, they value the technical support, and that's why we command a premium for our products, both in pricing and contribution margin. What we do not attempt to do is play in the bottom of the pyramid in the commodities, which is all around cost leadership, and that's where we find, if you like, our competitors from China and India, Bangladesh. As we look at the 2011 performance, this is an industry and a business that faced severe headwinds. On 3 severe headwinds that we faced, one was our exposure to the Swiss franc. As we look at the strengthening of the Swiss franc over the last 5 years, that has basically crushed our business given our fixed costs exposure. And that is being addressed in the restructuring. Over the last 5 years, the strengthening of the Swiss franc has taken about $170 million EBITDA of the Textile Effect business results. So quite a dramatic impact over the last 5 years. We also see the consumer confidence as the world went into meltdown in 2009, some recovery in 2010, but then declined particularly in the textile industry, 2011. And consumer confidence sentiment, particularly in Europe today, is at a low point even beyond 2009. Fortunately, we are seeing quite some recovery here in the U.S., and the industry is hopeful that, that will continue. Again, very difficult markets that this industry has been facing over the last 2 or 3 years. And finally, one of the strongest headwinds we faced in 2011 was the cotton pricing. And we saw a cotton spike in March 2011 to a price of around $2.45 a pound. That is just unprecedented. For almost 3 decades, cotton has been around $0.60 a pound. Today, fortunately, due to reduced demand, we're seeing cotton pricing around $0.80 a pound. Now the impact in 2011, the way the industry tried to cope with it, the brands, retailers couldn't clear the price increase, consumer confidence, consumer sentiment at the high street was at an all-time low. So the prospects of passing on price increases was 0. So what took place in the industry was a change from cotton-based to man-made fiber. Man-made fiber, of course, uses less cotton, and unfortunately, with our sales in dyes and chemicals, when a fabric is man-made fiber and synthetic, it uses only 50% of dyes and chemicals as opposed to cotton. For ourselves, we managed to maintain 2010 volumes. So we were able to take market share and, if you like, respond to the market changes. And we benefited by the man-made fibers where a growth of dispersed dyes increased with the market increases we saw. Just as we look forward to 2012, as I said at the outpost, we've got a very clear business plan, we've got a very clear strategy and we are very clear that this business will return to a sustainable EBITDA as we go through the end of 2012 into 2013. So our prime focus is delivering the restructuring that will deliver $75 million base cost savings that will reduce our exposure to the Swiss franc significantly. We will release approximately $100 million from working capital over the next 2 to 2.5 years. That's because we're simplifying the footprint, the product movements from Asia to Europe, back from Europe to Asia is eliminated. We're investing in our facilities in Asia, we're investing in our facilities in South America. So the shorter lead times and increased flexibility that offer significant simplification impact and release of working capital. And we continue to build our capabilities in Asia. But at the same time, we continue to protect our business in Europe, and we continue to invest particularly in South America. On the top line sales, yes, it is about market share. So we don't expect any dramatic hockey stick rebound in terms of the consumer market. So what we do see is real opportunity to increase our market share, bring in new products, new innovation. And the real backbone to the Textile Effect business is our strength in innovation and technical service. We are the industry leader. And we are going to focus on some of the prime markets of Brazil, India, China. And in doing so, what we built, given the example in China over the last 3 years, we have built a relationship with the Chinese textile department, the government department, an organizations known as CNTAC. We have now signed an exclusive partnership with CNTAC. The objectives and the goals of CNTAC as an organization is to execute the 5-year plan, and that is to reposition the textile industry in China to protect the jobs in the industry. And they have turned to Huntsman Textile Effects to help them to achieve those goals. They, in turn, have introduced us to a province in China, which is Shaoxing. Shaoxing in China produces 1/3 of China's textile output. That's 18.5 billion meters of fabric, a business approximately $13.5 billion in value. We have now signed an exclusive agreement with the Shaoxing government, where we will support the mills in the county. Central government is investing over $2 billion, relocating the mills in the county. They've invested in the largest ethylene treatment facility in the world. Now, they need a partner who can help them to maintain the standards, reduce water consumption, reduce energy and also raise the quality of the fabric that they're producing. And that's where Huntsman has a prime position and the reason why we have signed the partnerships. We will go from Shaoxing to the second textile hub in China with the support of CNTAC and the third textile hub. So we're very confident to see the growth in China over the next 3 to 5 years, a significant growth. We've also focused on Brazil. We have a facility in São Paulo we've invested. We have facility in Mexico we have invested. We have leading positions, we're managing major mills in South America, Central America. They are feeding the markets here in North America in terms of the apparel for consumers. We have leading positions, many years established with the largest mills in South and Central America. Marketing and innovation. Again, we are the leader in this industry. We are, by far, the business that brings new technology, new products to our customers. And again, that has created opportunity as we see some of the dynamics changing in this industry. And we also are leveraging our technologies and many technologies. If you come into that TE kitchen, we have many, many technologies because what we pride ourselves is providing a solution formulation to meet our customers' needs.
As we look at the restructuring, what you'll see is a further realignment of our manufacturing footprint to Asia, but also building on our existing capability in South America, existing capability in India in Baroda and also in Mahachai in Thailand, which reduces the risk of transferring products from Switzerland to the other locations. And the result of that, the Basel operation, which is almost 50% of our fixed cost today, will be eliminated in the next 18 months.
So the plant would weather $75 million fixed cost savings, and it will reduce the number of jobs by 600 but will reinvest in different parts of the world about 150 positions, and very importantly, reduces our exposure to the Swiss franc going forward in this business.
One of the changes I alluded to earlier was in the industry, the world is now recognizing that water is becoming a scarce commodity. In Tony Hankins' presentation in polyurethane, we saw that gave opportunity. And what we see now is an opportunity where governments in China, developing countries, are now finally stepping up to their responsibilities. So I talked about the brands and retailers and now, we see in these countries that the government is now implementing legislation in terms of environmental, in terms of ethylene discharge, in terms of water consumption and energy consumption. We have introduced, for the first time in 10 years in this industry, a range of dyes, new molecules, which will bring significant benefits to our customers, up to 50% water and energy saving. You can see on the chart there that traditionally, for 1 kilo of cotton to dye, you would actually use something like 60 to 80 liters of water. The best technology until we introduced the Albatera [ph] range was about 30 to 40 liters. That technology was Huntsman. With the new product range that we have now launched to market, that reduces the water consumption from 50 to 20 liters. That improves the costs of our customers. It makes sure that they preserve and meet their targets that the government has set, and they've reduced the amount of energy and CO2. It also gives them, because of reduced cycle time, increased, if you like, capacity at 0 capital, which again is very attractive to our customers. This is unique technology. And when we look at the research and development pipeline, we've got a very healthy pipeline, not only focused on dyes, but also in terms of our chemicals and the effects that we bring to the customer to help them differentiate their products. And those are a few very simple examples.
I talked about working with, if you like, customer's customer and this is an example with Nike. Hopefully, you managed to pick up your sport shirt this morning, which one of the examples of our finish is the dry fit technology, and that means that when you work out, when you're jogging and you perspire, that will be absorbed by the fabric and taking the moisture away from the skin. And other technologies are going into about the same product, UV sunlight protection, odor control. Again, that is Huntsman technology.
So in summary, when I look at the financial performance of the business, we are addressing the direct costs and we're very confident that [indiscernible] Currently underway. And when we look at the historic performance of the EBITDA in the bottom left-hand corner, we're very confident that this business will return back to the levels that we've seen in the past and beyond. And we're very excited about this business, and we're very confident where this business is going in the next 12 months. So finally, what are the competitive advantages? Yes, we'll deliver the fixed cost reduction, we'll deliver the $100 million working capital benefits. It is a business that is very much market-driven and responds to the customers’ needs. Innovation and sustainable chemistry, that is what we do. We are the #1 in market. We have now, or complete when we finish the restructuring, world-class production facilities in line to the market given there is much better cost competitiveness from our, the facilities. And again, one of the backbones of this business is the high technical competence that none of our competitors display today. So thank you for the time and I'll be pleased to take any questions.
Hi, Paul. Intuitively, selling systems sounds appealing. It certainly works with some of the other Huntsman businesses. But as we scratch our head and look at profitability over a number of years now, is it possible that this is just one of those anomalistic situations where selling things together just doesn't work well? And if that's -- and if that turns out to be the case, is there an opportunity to separate, maybe divest dyes and concentrate on chemicals or vice versa?
Peter R. Huntsman
We're outside. That's more of a strategic question, I think. I don't mean to -- if Paul wants to comment on this. I think there are 2 things that we need to bear in mind. 2009, we saw, if you just look at the lower left-hand corner, we saw the impact of consumer demand in this industry hitting this industry, not just customer, but the industry. We started our recovery from that, we took the corrective action, we cut our costs and pushed volumes, 2010 was a profitable year for us. We then saw the impact of higher cotton prices in 2011. The impact of that has had $64 million of negative EBITDA in 2011. I believe that with the cost-cutting that we have in place today and the capital savings that we have in place in working capital today, this business will -- it has to turn around. If the correct answer here is just to shut it down, we'd have done it. If there's an opportunity to sell it, we'd have done it. If there's an opportunity to merge it with somebody else and create shareholder value, we will do it. So I don't want it to come across that we're somehow -- it counts the trends and we're stuck in a rut here that we've only got one path for us. But right now, the best thing that I believe we can be doing to catch shareholder value is to make sure that we have the volumes coming back in this industry. So I think Paul has [indiscernible], we've got to know also to make sure that we have cut costs, continue to cut costs, deliver these projects on time, ahead of schedule, and hopefully, greater than what we've told the market here. This business needs to be profitable. I believe in 2012, this is going to be a transition year. As we've said on our calls, first 2 quarters of this year, we are going to be actually seeing a lot of the implementation where you will not see cost savings in the first 2 quarters of this year. You will in quarter 3 and quarter 4 this year, start to see those cost savings fall to the bottom line, and certainly by 2013, this spot -- well, it shouldn't -- it will be an EBITDA positive generating company -- division within our company. So again, if there are options out there other than what we're doing to create value, we're certainly open to those and we will pursue those.
Well, I guess the question is do you think that they would perform better separately owned by somebody else? One portion of the business owned, say, dyes owned by somebody else and you focus all of your efforts on chemicals only?
Peter R. Huntsman
I -- again, that is something we've looked at, breaking the business up, selling it by divisions, merging it by piece. I believe that as we look at our unique division, many of the applications that we see going into the Asian markets and so forth, we are able to take a complete package of both dyes and chemicals to the market, to our customers. And we believe that we get a premium for that.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Kevin McCarthy of BofA Merrill Lynch. Just a question on your peak EBITDA goal of $75 million. Kind of running through the math, I guess you lost $58 million last year. If we give you full credit for $75 million of cost savings, I guess it's the plus $17 million if we take away $33 million of headwind on the Swissie last year. That gets us to $50 million. We need $25 million more to get to your $75 million. And so maybe you could talk a little bit about where you see that coming from? Is it share gain, is it pricing opportunity? It kind of implies another 3 or 4 points of margin upside against your top line.
Paul G. Hulme
There's a combination of 2 things, Kevin. One is market share gain. As I said, we're not planning on any great rebound in the consumer market but the opportunities on some of the examples I referred to. We believe that brings opportunity to the Textile Effect business, and we are capitalizing on those today. Secondly, a part of the restructuring plans, you'll see from the diagram, we're transferring product to our facility in some of the sites, our facility in Mahachai, and also using some external tool manufacturers. The cost versus our best case today of those operations will be significant or better than what we enjoy today. And that will contribute also to the improved bottom line profitability.
Peter R. Huntsman
And bear in mind, Kevin, that your assumptions assume no greater volume and the margin that would come with that volume. And that's where the difference is.
Bill Carroll - UBS Investment Bank, Research Division
Bill Carroll from UBS. What are the cash costs for the restructuring for the next couple of years, and also the capital that will be needed for these moves?
Peter R. Huntsman
The chemo[ph], the overall cash cost is about $120 million. That should...
J. Kimo Esplin
$84 million is the restructuring charge we will take, including $25 million that we have not yet taken. So that is the cash cost, and then there was another $50-somewhat-million noncash charge.
Peter R. Huntsman
There are no further questions, we'll move on to our last presentation of titanium dioxide. Paul, thank you very much. Given all the past questions, I think, we've had of titanium dioxide, I feel like we should have a drumroll or something like that going with Simon getting up here. But Simon, I'll turn it over to you.
Thank you, Peter. Ladies and gentlemen, good morning. My name is Simon Turner. I have the honor of being the President of the Huntsman Pigments business. And I can tell you, I have never been more excited in my adult work career. And that implies I had a junior work career, too. I'd like to start my comments here by just saying to you that myself and my team, over 2,000 associates around the world, we believe we've got 508 million reasons to be really proud of the business performance we delivered in 2011. So we are really proud of that. But I can assure you after 23 years in this business and 4 years in this job, there is absolutely no way we're going to look back and remember 508 is the high watermark of our business performance. And if you ask me if I'm a peak or plateau guy, I want to go on the record straight up and say, I'm a plateau kind of guy. It's going to be a bit choppy, we know that, but I'm a plateau kind of guy, and I'm here to share with you why I believe this business has got a number of really great years in front of it. And we're going to retain this elevated level of earnings. Firstly, I'd like to just say to you that I'm going to break my presentation into 3 components. Firstly. I'm going to make a few remarks about 3 key industry drivers that we see. Secondly, I'm going to turn the lion share of my presentation over to why I believe Huntsman is extremely well positioned to prosper in this exciting industry. And finally, of course, a lot of interest in TiO2. I'd like to spend a few short minutes at the end of the presentation switching back to what we see right now in the here and now. And I hope that's going to meet your need to both give you insight about the business and some color about where we are as of today.
Firstly, I'd like to point out here that in our business, we've got nearly 40% of our sales in developing nations. And we have nearly 50% of our sales in Europe. As you know, Europe has been tough sledging over the last period and continues to be so. But we still managed to deliver this very good performance in our business. What I'd like to do first off is I'd like to go straight into some industry drivers. Now, let's have a little bit of a -- let's think about demand that we see in this industry. What I've shown on this chart here is probably not new to you. In the bottom left, you can clearly see the significant amount of head space that exists for growth in use of this type of product, which historically has been closely correlated to GDP in a mature market and probably above that in developing nations. We have a lot of room for maneuver here. This industry is decades young and has been growing at an average of about 3% over that period. And let's just assume for now that this industry will continue to grow at 3%. And I have to tell you that is at the bottom end of forecast by most people about demand in this business. Many people are predicting an inflection point upward, and I think we saw that earlier in my colleague, Tony Hankins' presentation in the world of polyurethane. Many people are predicting that for TiO2. And we have already seen, very recently, how China has already overtaken the U.S. in terms of scale of demand for this kind of product. And we can see on the bottom or the right-hand side of this chart, the degree to which demand is shifting to developing nations, and China in particular. And of course, China, you probably know, has installed about 1 million tons of capacity over the last 10 to 15 years. And let me just remind everyone that all of that capacity is sulfate technology. And sulfate technology, the growth of that has far outstripped that of chloride technology.
So let's just take this thesis here that we see, these kind of demand levels in the mature blocks and these kind of demand levels in emerging blocks. I'd like to point out though before I move on that in North America, this is extremely conservative. If we see anything like a decent rebound in housing, there's upside on these kind of demands. And in general, I believe there is upside on this 3% CAGR that we've got on the top left here. Let's go with it for the time being, though. And let's put that together with what we see and what we know about capacity development. What do we know? We know 3 things. If there's any one brownfield scale extension going on out there, which is only going to come onstream towards the back end of its period shift, we also know that producers like ourselves will continue to squeeze out and de-bottleneck more tons. And that those tons can be squeezed out at relatively attractive economics, even sub $2,000 a ton. We also know that no one's planning a full greenfield investment in this industry. As I've said, I've been in this industry 23 years and I've yet to take part in a project that builds a brand new pigment factory. And thirdly, we know that the Chinese have been building capacity around 100 kilotons plus per year, and we expect that to continue. If, as many people think, feedstocks and mineral sands serve to constrain capacity development, and let's see that most of the Chinese capacities built on the back of ilmenite, sulfate ilmenite, and that can only raise the operating rate. And I believe this chart shows us in the following years that the operating rate will structurally be in the 90% to 95% band, and that there is more upside to that band than downside. For there to be downside on that number, we need to see someone quickly building a lot of capacity, we need to see plentiful ores and we need to see a massive drop-off in demand. I do not believe we'll see such a combination of circumstances. And I put it to you that this is going to be a very good place to be in the coming years. So we're really excited about that.
I'm going to move on to the second dynamic that I'd like to address as part of this presentation. On the right-hand side, and I've shared this before with a number of people, I'd like to make the point that over 80% of applications are quite happy to use either sulfate or chloride products. Sulfates and chloride as a concept has become less of an issue today in this industry than it's ever been. And from a customer standpoint, you will be able to read about major international users of titanium dioxide, using Chinese sulfate products, you will hear these people talk about how they could switch between different products. Of course, there are some applications that favor chloride, high-durability applications at the top of the chart. And there are some, conversely, that favor sulfate like the inks where the product is much softer and less abrasive, and where Huntsman is very, very prominent. I'm going to come back to that theme. As I said earlier, the overwhelming amount of capacity growth has come out of the sulfate market, and the international users of these product now are more content to use sulfate or chloride pigments as they go forward. Now another factor that you've heard about and that you're listening throughout there from people is the ability for consumers or the desire from consumers to switch away from the world's best pacifying agent, TiO2. And of course, there are a number of substituted type of activities that are going on out there. But I have to tell you that we do not see large scale erosion of demand in this business. We see this will remain the prime resubstitution, the primary pacifying agent. We see that there is still headspace for consumers of these products to pass through price increases to their own users, and they have successfully done so. Even in the year last year, we saw record traction of Tio2 in the last 3 decades. So we believe that fundamentally, the demand for this product remains intact.
Let's expand on that somewhat. Another way to think about these product is these 3 main blocks of consumption. The top 2 blocks here, the blue and the green, in the top, let's take them one by one. Here, we have differentiated applications. Sulfate or chloride products can be used in specific applications. Price premiums of 10% to 20%. And that can mean anything up to $1,000 extra by selling into those markets, something that Huntsman does and will continue to do more of. There's limited supply choice, quite frequent only 2 or 3 providers. And customers take a very strategic view and are very reticent to actually switch between such products. So inks, we might think of as a very good example in this case. In the green area, there are very high-quality products. These are products that have approached the limits of the chemistry and the physics in terms of opacity. We just can't get any more science out of these products. And they work extremely well, and we see these in architectural coatings, we see them in sulfate and chloride, and this is an area where some of the Chinese and emerging producers are starting to get a foothold in this block. And finally, down at the bottom, in the red, we saw lower quality emerging products. And there's quite a range here. Some of these products are now starting to get extremely good, and they are being tested by many international users. They currently, and I say currently, show a discount of around 10% to 20%. But I'd like to temper that comment somewhat by saying that in the third quarter of 2011, there was no difference in price between Chinese and Western products. So when price traction was at the zenith last year for the year, actually, there was very little differentiation here in terms of price. But of course, there are many choices to be made because there are numerous emerging producers. And that's the second of the 3 trends that I'd like to talk about regarding this industry. The third, and one that we've heard a lot of conversation around, has been feedstock or mineral sands, or ores as we call them in our business. And this is a very dynamic area. As with everything in TiO2, averages are not your friend. And one has to peel back from the feedstock and look at the different components, which is what I will make a very brief attempt to do. On the right-hand side, we see 3 blocks of mineral sands. Let's take them one by one. I'm going to start on the right-hand side because this is the lower-grade ilmenite. This is found quite readily in the earth's crust, there's a lot of it. It's scattered around, it used to come from what I would call the commonwealth countries, Canada, Australia particularly. But progressively, these products are being mined in Africa and other parts of Asia such as Vietnam. There are some deposits in China, but China is a net importer of these products. And there are numerous producers, many of whom are not household names. And many of whom are benefiting from $350, $400 a ton kind of prices out there for ilmenite and doing everything in their power to bring as much of this product into the market. And very responsive to price, supply and demand. Prices go up, prices go down. And this is a market which is very dynamic. In the middle, we have chloride slag. There are only 2 real scale providers of these products. One of them uses its product for captive purposes and also sell some on the merchant market at the stage. The dominant force in this area is Rio Tinto. The Rio Tinto have operations in South Africa, west of Spain. There were sub-operations in Canada. So those are the chloride slagger, and there's very limited choices in terms of producers.
On the left-hand side we have rutiles. Now rutiles, synthetic or natural. Natural can be found with some luck in the earth's crust, but it's very difficult to find and get out. And where it is found, it's in areas which arguably have some level of sovereign risks. It also comes as a byproduct with ilmenite facilities at times, but in small quantities, and also can be made synthetically by people like Iluka, who you've no doubt heard of. So also having very different characteristics to rutile. It's very -- it's needed in the chloride process, particularly around chlorides for startup, but also has alternative uses in welding rods and metal industries, and faces competition for these products. So that's a brief characterization. On the left, and I think the point of the chart on the left is to say we do believe that there's going to be some pinch points around these products over the next couple of years. But we believe those pinch points will moderate. We believe the existing fundamental price increases we've seen from this industry essentially will remain elevated or that there will be some moderation, particularly in the world of ilmenite. I'd like to amplify those comments a little bit on the next slide because I plotted out here someone else's view, and it's a view which I share, in fact, for 2012 around contract prices. Now you know that Huntsman has around 40% of its feedstocks in 2012 protected on '11 kind of contract prices. But if you're buying products out there in the open market, these are the kind of prices you'll pay, $26.50, and these are based on contained Ti. So if ilmenite is around 50% Ti, it's $350 a ton of that product but actually $700 per unit of Ti. So I hope everyone is clear with that. In the nomenclature, we've provided that across the different buckets. And as I've said before, the ilmenite has plenty of deposits under development, relatively low barriers to entry, although it takes time to get these facilities working properly and established. There are many sulfate technologies that either use ore slag, sulfate slag or ore ilmenite, or any mixture thereof. And there is an ability to mix and convert different blend ratios of sulfate slag and ilmenite. This is the chloride slag, I think we've covered it. It's capital and energy-intensive. You want to build a chloride slagging unit? You better have hundreds of millions of dollars and access to plentiful and relatively attractive energy. Natural rutile, again, very different, and most operators are trying to minimize the use of these products, but you do need to buy some of this product. So I hope in my time so far, I've covered the first part of my presentation, which is what are the 3 main drivers of the industry level? So to recap, supply and demand looking into a tighter environment with upside for us; chloride sulfate a non-issue as far as the customer's concerned, not willing to pay more; and feedstock dynamics, yes, price is going to remain high or high-ish, some more moderate more than others, But we will be able to get these feedstock over time.
Let's move on to what gets me really, really excited. If you work in the Huntsman Pigments business, you are sick to the back teeth of the transform word. And if you work in other parts of Huntsman, you're very well familiar with the word transform. Let's think about the word transform. I like to think about it as a chrysalis and a butterfly. When was the last time the butterfly turned back into a chrysalis? Transform is a one-way street. And what we're trying to do with this business is elevate these earnings and hold them there. And we feel really good because in 2011, 20% of our earnings came from this program. I spoke about it in this very room 2 years ago, and we just got started then. And in 2010, we delivered over $70 million or a third of our earnings. In 2011, this is our own effort. This has nothing to do with the market, nothing to do with pigment prices. It's about how we restructured our Spanish operation, took it off the road for 6 months, stocked it, retrofitted it with automation, cut a third of the jobs, got the grants from the local Spanish authority, retrained our workforce and started it up successfully. This is about how we repositioned our products into the market for premiums and for value. This is about the savings by shutting down a small sulfate plant in the United Kingdom called Grimsby. So these are self-help activities. And I'd like to put it to you that we have plenty more of opportunities. Many of you know about our Calais, France investment. I'm going to come back to that. But let's look at the essential components of the transform program. We have a market-facing piece switcher out, which involves selective de-bottleneck, which I have spoken about. We are growing our ink segment. We have currently 25% market share. DELTIO is a free flow product, which is sold out, and we're investing in more capacity. We sell it at a premium. This year, you will hear about our solar reflectance launch. I demonstrated it with a heat gun at the back of the room 2 years ago, and this is a way of making colored surfaces behave as if they are white. So it's very exciting for the Titanium Dioxide business that's spent 50, 60, 70 years making white powder. In terms of coproducts, you all know that the sulfate process produces about 4x volumetrically the amount of coproducts to Pigment. This is both an opportunity for us in the future and the cost of today. We've successfully reduced our cost by tens of millions of dollars. We plan to continue that and leverage our sulfate position. And of course, of all the major producers of TiO2, we have the most sulfate capacity, so therefore, we have the most access to ilmenite economics, and we will maximize those. And we will take advantage of this feedstock situation. And we will not be looking at backward integration because we believe supply will be out there. And we believe that's an advantage for us over this next period. And I'd like to talk you through 1 or 2 pieces about this Transform program. Firstly, let's have a look at our asset structure in the bottom left. As I've said, we have these facilities. They are not the largest scale facilities in the world, that's true. But I'd like to remind you that as feedstock costs escalate and direct cost structures become the dominant part of the pigment producers' cost structure, this diminishes, but it does not eliminate, the effect of the indirect cost structure. That's a very important point as we go forward. But as we can see on the chart, our technology mirrors the region it's based in. In Asia, sulfate dominates, we have a sulfate plant. In North America, chloride dominates, we have a chloride plant. In Europe, sulfate is the majority, we have majority sulfate in Europe. So we're well in tuned with what the market requires.
I've shown on the Ti basis on the top right how our sulfate and chloride feedstocks breakout, the brown area or the red area depending on how you see that color we have the opportunity to increase the amount of ilmenite, we take into our processes and we are doing that. And you can expect to see more of that. We have the opportunity to invest in efficiency and flexibility and the retail and slag part of our chloride use. And of course I've said, we have less exposure to this segment and some others. And in the bottom right, I'd like to make the point too over the last 3 years when we've been running the Transform program and this year, we will be investing $150 million in this Pigments business, and we are doing that to get very attractive returns. And all of the project work is coming on top of what we see as the fundamental industry supply and demand. And that is why I'm extremely excited about the opportunity that the Transform program brings and the market itself. And I've tried to pinpoint the locations on the bottom right where you can expect to see these announcements. So for instance, in the value creating coproduct, we've announced Calais, you can expect to see further initiatives in both TK and Scarlino. In the feedstock flexibility, you will expect to see further initiatives in TK, Greatham and Scarlino. And of course, this year, as I've said, marks the launch of our Solar Reflectance Product.
So let's have a little bit about look at what we are doing for our customers and to better our world in terms of market position. I talked earlier about inks. We are on a journey over the next couple of years to get the 50% of our revenues in the differentiated spot -- 50% of our volumes, I'm sorry, in terms of sales. We believe that the segments we're targeting are more robust when the demand goes down, our demand and our sales does not dip as dramatically, and we saw that in the fourth quarter of 2011. We lost 18% in that soft patch, and others lost around 25%. And what you are seeing there is some of the benefits of our market positioning. So on top of getting price premiums, you have a more robust business. The pricing reflects very demanding customer requirements, as I earlier stated we have a low number of qualified supplies. Now we started this journey a couple of years back, a lot less than 20% of our sales. We're targeting 50% and I'd like to indicate to you we're already are just below 40%. We are well on track on this journey, and we have doubled our penetration of the Ink segment in the last 3 years to 25%, and this will increase as we go forward. This isn't about inks and paper, this is about packaging inks, high-quality packaging inks which are all around us which are very attractive segment, which is served only by sulfate pigments. The best examples of innovation in our business, DELTIO free-flow product, 10% to 20% price premium. This is about making a TiO2 that looks like a powder and behaves like a granule. So when you think about instant coffee, that's the way to think about DELTIO. And DELTIO has been a raging success because it de-bottlenecks, uses plants and reduces their energy. And also workers who use this do not go home covered in dust, so they're big fans of this granules. On the right-hand side, I'd like to put it to you that we are going to have a specialty business component in our TiO2 segment. We are very excited about our Solar Reflectance opportunity. This market's worth about $180 million, it's currently serviced by complex inorganic compounds, customers are extremely excited about this. We have got over 50 NDAs signed. We have completed most of our trials, prices for this product are 4x greater typically than regular TiO2 but our cost structure remains the same. So you can expect to see very high margins. And just to give you a bit of a guidance and a sense of what this could be worth to us, over the next 5 years, we expect to penetrate this market to the tune of around 20%. And we'd like to think about margins greater than 50%. And that should help you think about how much value we plan to deliver, as I said over and above, what we're doing in this Pigments business.
Let's move on to our co-products. Since 1995, we've moved from just over 30% to 60%, all of these what used to be waste is now beneficially recycled and reused, that is the essence of sustainability and action and these are the 4 segments we currently service. Calais, the opportunity we invested in last year which is well underway in terms of construction, and which I'll talk a little bit more about is the best example here of how we can take a $40 million project and get benefits of around $20 million annualized. And we can expect to see, over the next 3 years we can expect to see about $30 million of benefits coming to the bottom line in reduced costs of the TiO2 business through investing in co-products. Something that is specific to the sulfate technology, possibly in Chloride, but only to some extent. Here's a great example, there's the plant, top right. That is a typical Western pigment plant. It's a big investment, cost a lot of money to replace, we are taking down equipment on that picture of about 1/3 of that steel work will disappear, what will be replaced by magnesium sulfate fertilizer plant which will service the European market predominantly. We are going to reduce our energy significantly by 40%, we're going to lower our CO2 footprint which is already one of the lowest in the industry and where we've taken out 12% over the last decade, we will reduce fixed cost to the tune of about $8 million, and we will liberate about 8,000 tons of TiO2 capacity. And we are very excited about this project which is one year underway, and we're very excited the French government chose to give us some money to help us on our way, so that's a very good story here for us in Calais. And when you think about that plant, that plant is going to be a sulfate plant, leveraging co-products and making inks, which as I said to you is going to be sold at a 10% to 20% price premium. So this is a recipe for us that we feel very strongly about, very good about.
Now I'd like to start moving away from the Huntsman-specific Transform program talk a little bit about today, before I do that, I'd like to just pick out a few points on this chart and I'm going to start with the bottom left. $650 million is the peak kind of number that was put out. Let's have a little think about that 650, right? On the bottom right, the last 2 quarters of the second half of 2011, this business ran at $306 million times 2 at $612 million. And that included an 18% volume drop off, and some headwinds because don't forget we've already been on boarding feedstock costs in 2011. This isn't something that starts in '12. It already started happening at '11. So you might say, well, yes, okay, so you're within sight of the peak, but I've already shared with you the Transform program where were we've already delivered $100 million. And I feel confident that there's at least another $100 million over time it's not going to come tomorrow, it's going to take time to get to, but we will get to it, and we will add those numbers into our bottom line. So I feel confident both that a, we are on a platter and we plan to stay there; and b, peak is realistic. I'd like also to point out to you on the bottom right, that $161 million was our best quarter last year, the quarter 3, let's think about 2011, the first 9 months, high demand, strong pricing traction, record price announcements and captures, and things got a bit sticky towards the year end. We moderated facilities to make sure we didn't end the year with high levels of stock and run up our inventory. We ended the year with 60-day sales, in times gone past, that was our average. But we went to over 40 days over the last 2 to 3 years. So 60 in today's world was relatively high. But I think you'll find that compares extremely favorably against the industry where others have got higher levels of stock. So we've already taken a bit of that pain and that moderation in the fourth quarter of 2011. I'd like to make that point before I press something. I think it's quite clear around the margin expansion, et cetera, of 2011 on the top right, and what that's done to our earnings, I think it's pretty clear to everyone in the room.
So I'm approaching the last few minutes of my segment. And now I'm going to turn the time over here to discuss a little bit about the here and now. We're in quarter 1, we're towards the back end of quarter 1, you all know what kind of price captures we've had over the last 6 quarters in this business. And you know that's been part of but not only the part, that's formed our earnings run off. And as we say here today we look at this quarter 1 '12 and I like to point out that $0.15 and that was effective 1/3 not for the whole quarter that those are the other announcements we announced around the world to different parts of the world . And in quarter 2, you will already have seen there's one pre-existing North American announcement out there effective with protection on 1 April $0.15 a pound and that we have just recently announced over the last couple of weeks, we're the first to announce in Europe, EUR 200 a ton fresh price increase initiative, and $300 a ton typically in Asia and the Africa, Latin America, Middle East type of markets. And that's pretty hot off the press, that's pretty much out there. Subsequently there's also been other U.S. price announcements. I'm going to talk too much about the quarter 2 price but I'm going to just talk a little bit about what we see here now in terms of demand. I said earlier we had a soft patch at the end of 2011 in the last 3 months. I have to tell you that soft patch has continued into the new year and is been the case in January and February. So what we've seen is some relatively high industry stocks at the back end of last year, a continuation of the soft patch, and as an industry, some on boarding of further feedstock costs in the first quarter. So that all feels pretty much like a headwind, right?
On the counter to that, we have got these price initiatives out there running, and if we think about the first quarter and price capture, I think maybe a way to think about it was that quarter 3 last year was a pretty exceptional price capture. And if you want to think about quarter 1's price capture, maybe a way to think about it would be to put the quarter 3, 1 of '11 to one side and look at what the typical pattern of the rest is. And I think that's probably a pretty reasonable guide to how we see the first quarter.
So I think having been in this industry 23 years, I'm not going to rush out there in the early part of the year, we, Huntsman, and claim, it's onwards and upwards for every terms of demand, we want to see a bit more, we think fundamentally that demand comes back because we think the customers are being testing us a bit, in terms of trying to deter us from further price increase. So we think demand comes back. It's just a question of how that profile looks and how that timing looks. And then against that, you got to play off maybe a little bit more, stop knocking around there and then you got to think a little bit about how that plays into price trajectory. So I submit to you that this is an extremely exciting situation on the long run. We find it extremely positive. Our plateau like in 2012 as well as '11. But there's no doubt it's a bit choppier in the front end part of the year.
I'd like to close my remarks now and just make the following points. Five reasons to believe that this is a great place to be, and we are going to do very well in this kind of a plateau elevated earnings environment. Firstly, I believe this industry operating rates is high and set to remain high. And I think if anything has opportunities are about to go up. If one major facility gets an outage as we saw last year, and by the way there is a major facility that's down, and as demand recovers, that's pretty much like throwing gasoline on the fire. And we've see that after years of underinvestment in some of these facilities, you are going to get outages as well, they are the surprise factor, right? But I believe that this industry operating rate is set to remain high. And that's one really positive reason that we're very excited.
Secondly, I think we've shown that we will be fighting for the value of these products in the market. We have seen our customers prices increases and we intend to pass these cost increases through to our customers. And we intend to do that as we go through the year, recognizing that pretty much now, it's a quarterly drill, both in terms of feedstock negotiations and price negotiations with our own customers, by the very nature it's a little bit more volatile.
Thirdly, we have got an exciting innovation revenue program driving towards 50% differentiate. This is extremely setting because when I put a specialty piece in that, as well. We get premiums, we get robustness and all of that is taking us upstream. We do not compete against the Chinese. We sell 20,000 tons of product-ish into China. We sell it to high end applications, we do not compete head-to-head with Chinese purchasers. We have feedstock flexibility and we have diversity. This is something that we really feel good about. We are going to get ilmenite economics into this business and you've seen the price disparities of these feedstock type of products. So we feel really good about that.
And finally, we can do something that many others can't, we can leverage our co-products, sell for value and create tens of millions of dollars. So if we do the math, $150 million of capital investments for Transform, we can think about the innovation part driving at least $50 million of value, we can think about feedstock flexibility and diversity, depending on which path we take, driving at least that number probably more over time. And we can expect in terms of the last part co-products, of the order around 30 million type of value of benefit. And I hope ladies and gentlemen, I've managed to share with you my sense of enthusiasm about this business, and I hope it's very clear to you why I'm a plateau kind of guy, and the Pigments business is an extremely exciting business to be on. You've been very gracious to hear my remarks and I'm more than happy to accept whatever questions you may have. Thank you.
P.J. Juvekar - Citigroup Inc, Research Division
Just quickly on the feedstock situation. You mentioned that 40% of your feedstocks are protected in 2012. Can you tell us how long does that protection last? And when does that come up for renewal?
Could I ask you, P.J., to just repeat the last part of the question?
P.J. Juvekar - Citigroup Inc, Research Division
When -- how long does this protections last? When does this contract expire?
I think, P.J., the simple answer is that if you can think about the last thing for the rest of this year. We do have some ongoing contract protections, but truthfully those are going to diminish. So the way to think about that is an '12 job.
P.J. Juvekar - Citigroup Inc, Research Division
And if we believe in your plateau type of scenario, that means prices are higher for longer, that just gives your customer more time to test out this ultimate technology and paint. A couple of these customers are out there publicly saying that they want to release TiO2 between 5% and 10% in next couple of years, so how does that plateau scenario play out with this -- our demand technologies?
I think that's a great question. That's all ahead of us. What I can tell you and is we're not seeing any of those effects right now. We've spoken a lot of our customers to try and get a handle on what they're doing, and many of those customers will open and share with you what they're doing, they're not really trying to hide. Separately saying, they're going to take TiO2 out, but what's interesting to me is several kind of like putting more Chinese product into their formulations, and typically, you have to use a little bit of Chinese volumetric product to actually get the same effect. So actually that speaks to having more in. But of course they probably get some kind of price discount on that. There are initiatives out there, and some of this is going to happen. And it's not just going to happen in terms of products, it's going to happen in terms of applications, so we're going to see quality, we're going to see plastic bags which have not got whites in them, we're going to see clear cups rather than colored cups, we're going to see some of that. And others have done some an exercise, I think there's one relatively high profile exercise which estimates it could be anything between half, 1/2 and 2% impact. We don't see it quite like that. I think the way to think about this is I showed you earlier the demand at 3% CAGR. I think it's going to be on the day higher than 3%, the 3% in extremely conservative, but there's going to be a little bit of diminution of that by demand in structure. And I think that's the kind of envelope we're talking about here. We are not talking about wholesale substitution and we certainly don't stand behind the number of 10%, P.J, and I hope that adequately answers your question.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
This is Jeff Zekauskaus again from JPMorgan. When you look at the industry historically, chloride capacity tends to remain and sulfate capacity tends to shut down. Why is it that sulfate capacity tends to shut down over time? And when you look out over the next 5 years, do you see any material sulfate capacity shutting down? And would that make a difference to our operating rates?
James H. Huntsman
Well, there's a quite little bit in there, Jeff, so I'm going to break that out bit by bit. I'm going to take you through one or two statements not to be too kind of controversial. I'd like to just answer that in the following way. The sulfate process is the older process, right? So inherently, established producers like ourself, these kind of factories have been on the ground 20, 30 years longer. I mean, I started my career in a plant in South Africa, it's still going, it was built in 1962, right? And I think, that's -- there's a natural effect that they were smaller units with older technology, in those units. So this is partly done. And what happened over time is that Western producers like ourself, basically close, Grimsby, crystal or millennium closed the half, and we see some of that. We've seen some of that, but on the aggregate, of course, you got 1 million tons of new sulfate capacity in China, so your comment is true at the kind of like specific level and the aggregate level, sulfate has actually outgrown chloride. And the other thing is in the last downturn, the great downturn of '08 and '09, that's first time we started to see chloride units go down, right. So now we saw 2 major, sizable I have to say, chloride units go down. Right? And there's absolutely no truth to statements that suggest that chloride units are inherently and always more cost effective, it's absolutely not true. That is absolutely not true. There's a range every facility is unique. And there's a range of both good and bad at both technologies. So I think it is a bit of a mixed picture, the second part of your question, I think when we retool, if you like, or restructured, well over, many people thought it was gone, right, including me I have to tell you for briefly. We actually got this thing on the road again, we considered -- we looked very much at our others sulfur units, I shared with you about Calais, I shared with you about the Scarlino, differentiated products and the solar reflectors products, and I can tell you, these plants have got a bright, bright future. And the profitability of these plants may surprise you. So we feel extremely good about this. And I really don't think this is an issue, I think as we go forward, there's going to be a lot of pressure on some of the Chloride units using the high-grade feedstocks. And that's going to put a lot of pressure on it because they are very expensive input costs if you're exposed to those costs. And I hope that gives you some color and flow for your answer.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
Slide 89 really displays the limited cost inflation we're seeing in ilmenite and sulfates relative to chloride slag and natural retail.
Excuse me, I'm sorry, I'm trying to see who's asking the question. Oh, I'm sorry, I'm sorry.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
I'm just wondering whether or not that caused differential between the 2, creates a cost advantage for sulfate producers that in the near-term could limit the upside in pricing for chloride producers. And if that's the case, how long does that last, one, given that ilmenite is significantly more plentiful. And in effect, why doesn't that create a longer-lasting pinch point for chloride producers?
Okay. So I think, maybe I gave you a certain impression, I certainly didn't mean to. I did not say, I don't think at least, that chloride producers have limitations on their price. I think what I was saying is that if you are not an integrated producer, and you have a technology which is rich in rutiles against slag, chloride slag or even if you have a pretty normal mix of chloride slag and rutile, you're going to face quite significant cost pressures. I mean, we know, because we've got such a facility, right? So you are going to be under pressure. Now the ilmenite producer if they've got good ability to use this ilmenite product and if they've got a good co-product solution and if they sell good products, that is a really strong and powerful profitability recipe. So that's what I was trying to say about the 2 mixes. And there's everything in between of course. In terms of pressure points I mean our judgment is that ilmenite is there, it's about getting it out, it's about the economics, and at $400 a ton, and if your cost of operations are $100 a ton and you're seeing $400 out as an ilmenite producer, you are trying to get every turn into the market that you can. And that's what we see out there. And we think that supply demand is pretty traditional and typical. And that's responsive and we see that what goes up can come down. I think that's a big difference of the high grade where you just got a more concentrated supply bank, right. You got much less room to maneuver there. And I think you've got maybe a bit more stickiness around that cost -- probably cost. I'm not sure that entirely answered your question but I'm happy to answer further parts.
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
No, that covers it.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Kevin McCarthy, BofA Merrill again. Two questions. One on ore mix and one on inventory. On the ore mix side, you mentioned you're investing in feedstock flexibility at TK, Greatham and Scarlino. Perhaps you could comment on how much you might be able to change your mix of there, what's the magnitude of that flexibility? And then two, on inventory levels, where do you think producer inventory stands relative to your own 60 days, and do you have any insights with regard to inventory levels downstream in the channel at this point?
Okay. Let's just take those 2 questions, and one very different questions. The first one, just to be clear, I said we're going to invest in efficiency and flexibility, and that is important to recognize we're doing both and not one. So let's take a good example of Greatham where we're just spending some money to improve the amounts of TiO2 we can make from a ton of this feedstocks. That's an efficiency improvement and to give you a guide there, you're looking around a 5% kind of yield benefit. I would think about it in those terms. I would think about it in terms of some of our other plants, in terms of a TK, we're already on ilmenite, it's about being able to use a broader spectrum of ilmenites. And as supply demand unfolds that things are going to get the better pick and choose which ilmenites we put into that facility and get better purchasing power. And finally, in a place like Scarlino, a way to think about it is quite a common blend ratio in sulfate slag plant is kind of 70/30 kind of split and maybe that's a way to think about a near-term move of use of ilmenite in such a facility. I hope that's enough for that question. Feedstock levels, I said that we were very careful in the fourth quarter. A, we didn't have quite so much of a demand drop off; and b, we were very careful not let our inventories get out of control. We ended the year about 60 days. That's in an industry context of today, I suspect that's probably about 2/3, there'll be somewhere out there in the 80 and 90 range. And I'm not saying that stays forever, of course, but that goes out there into the market. And I hope that kind of gives you a feel for how we see that envelope. We would see how it's at the lower and.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Any thoughts on customer inventory levels, any real visibility there, I know it's always difficult.
Yes, I think we have to think of our customer inventories in 2 ways, our products and their own products. l think that there's no doubt that from a demand standpoint, they've got their own set of challenges around their own products, we've got no reason to believe that their inventories are fundamentally much higher than they were. I think that they've held in their breath a little bit as well. They've seen something I never saw in 2 decades. Like this kind of price announcements, and the price pressures, they -- I think you can read in the press, I think I read yesterday someone out there is pretty secular. And they're trying to defray and send us the signal that actually we are also part of the reason why their demands are dropping. So there could be some truth in that, right? But l think going through that, we expect to see volume and demand come back. It's just a question whether it's a spectacular rebound and we have seen that in this industry, many times, or whether it comes back in a bit more of a measured way.
Edlain Rodriguez - Lazard Capital Markets LLC, Research Division
Edlain Rodriguez, Lazard Capital Markets. This might be a question for Peter. During the call, a couple of weeks ago, Peter, you said that you expected TiO2 earnings to be down year-over-year. Now this was a little more conservative than the other producers, because everyone seems to be saying we expect earnings to be up. Where is that conservatism coming from, is it something you see on the demand side that they're not seeing themself or is it a question of pricing? I mean, where is that difference coming from?
Peter R. Huntsman
Well, I think that part of it is just the DNA of -- my experience in this industry of having grown up in the commodity industry, when you see a rapid run-up like this, you typically see something of a cooling off period. I think that it's also based on the amount of raw materials increases that are coming this year. And the downstream buyers of TiO2, their ability to accept prices. Look, I want to be absolutely clear here. I remain very bullish and I hope that something that came out very clear in this is that I believe that a lot of people look at the TiO2 industry and give it a -- an earnings multiple knock because of its volatility. And I think that what we're saying is over the next couple of years looking out into 2014 and '15 and perhaps even beyond, we see this is being quite a stable earnings platform, but as Simon said, there's going to be a little seesawing back and forth. l think we've been very successful in putting price increases through this last year. I think we'll continue to be successful this next year, but enough to offset all of the raw material increases? I don't know, I think it's going to be close. I mean, yes, I'd love to stand up here and tell everybody we're going to double profitability every other year and so forth and we're going to put through every price increase that comes through us. We're going to give it our best, but I'm just trying to be realistic. As we -- again, I think that we're going to see a healthy plateau in this business. But I fundamentally believe, as I said at the beginning of my remarks, that the growth in earnings this next year is not necessarily going to come from a continued improvement in TiO2 as much as it is going to come from the rest of our divisions raising their margins, raising their volumes, and cutting their costs. So again, if anybody earns added margin this year in TiO2, we will benefit from that as much as anybody. We're not fighting against any trend I'm just trying to be realistic.
I'd like to add to that, Peter. I think, you have to think about that in terms of demand as well. I mean, it's early in the year we, have a soft spot, sticky patches. It's still been there, so a little bit of caution. As many of you could see volume rebounding very quickly and that might happen. But equally you have to be alert to the possibility, it could be more than a measured return. So I think that's more from that perspective.
Peter R. Huntsman
I said earlier about -- that our businesses for the most part, our businesses have seen a nice pick up in the first quarter. Signs that TiO2 will be an exception. l think there are 2 reasons for that, one is the seasonality, we do expect to see demand remain sluggish through the end of the fourth quarter going into the beginning of the first quarter. And also I think that the buyers of TiO2, if they're sitting on paint inventories, if they're sitting on any TiO2 inventories. They are going to put off any purchases they possibly can. They've said that publicly that they want to try to defray any cost increases and if I were sitting here as a TiO2 buyer, I'd have a very aggressive strategy, to not accept a price increase. Eventually, that ban needs to change. How soon it does, how effectively it does and how wide it change. And when that demand comes bouncing back, seasonally, it usually starts sometime in the March, April timeframe. And that may be delayed by a couple of weeks, one side or the other, but to what degree it comes back, we're not sure.
Rob [indiscernible] Jay Goldman and Company. Just a quick follow-up on the back of Edwin's question. I know it's early in the year, but at this point, where should we set our expectations for 2012 for TiO2 EBITDA, you've said you expect it to be down, maybe you can just ballpark kind of setting the base case here as we begin the year.
Peter R. Huntsman
I think, if you tell me where -- GDP and overall housing and so forth is going to be, l think we'd probably give you an answer. I don't want us to get into granularity on the division-by-division basis going forward. So I just am not sure that that's a game we'll ever win. So I apologize but I don't think we're [indiscernible] I think you had your hand up early you have some -- okay.
[indiscernible] Jones from Davey [ph]. A question for Simon. Earlier you seem to indicate the backward integration was nice, something you had on the consideration. I mean, clearly we've seen Kronos and some of the other players in the industry look at the active backward integration, do you think that changes the strategic landscape for you guys? And why don't you see integration in the supply chain as something that might be under review for your consideration?
Yes. That's a great question. It's a question I'm asked quite frequently. l think there's 2 parts to the answer. And I don't really want to talk really fundamentally on behalf of other companies because obviously they're better -- they know better their own motives than I, but I will say this, is that we are majority sulfate producer. And my chart showed you earlier we have a number of choices, we can leverage our part ilmenite economics, we can make great parts, we can sell co-products. So for us, the impact of high retail prices and chloride slags, while we're not happy to see that, we do have a lesser exposure and a lesser raise on deck, if you like, to actually move to that kind of backward integration. If you ever think about backward integration, you've got to believe a couple of things to do it. You got to believe, a, probably that security supplies a problem for you. We don't believe that in Hunstman. You've got to believe, b, that being in Mineral Sands business, you either bring some strong capabilities or it's a place -- great place to be, strategically for the long-term and you really want to be there and that's going to be a focus and I don't think we believe that. And finally, you got to be prepared if you believe those 2 aforementioned items, you got to be prepared to pay to do that. Now you can integrate with another company and you've got to think about the value prepared to ascribe to the mineral sands portion, and that's an interesting discussion, or you've got to be prepared to build your own kind of slagging unit and that is, as I said, hundreds of million of dollars throw there. And I think it makes sense where, a, you're worried about it; b, you're pretty dependent on high-grade materials. i.e., your ore chlorite; and c, maybe you're a pure play company and that this is your core business, right? So I hope that gives a good answer to how you might think about those integrations. I wouldn't say we're just not looking at it as a point of principle, but I think it's less likely than more likely when it comes to us.
Peter R. Huntsman
I would also say from a corporate strategic point of view, if we have $10 million to invest in the Pigments business, frankly, I think that longer-term, we are going to see a much greater return consistently on investing in moving into the inks market, moving into the solar reflectance markets, developing products such as DELTIO. And one thing I hope that's not lost here, we looked at a trough just a few years ago $25 million EBITDA for this business, if we return to those markets, what we're saying here is that the trough is no longer $25 million EBITDA if we return to those exact markets, we believe that through Transform that, that is going to be $100 million to $150 million better. I believe that if you really see a fundamental fall off in Pigments, you're going to see a fundamental fall off in ore margins and ore supply as well. Longer-term I believe that there is better a shareholder value creation, not buying into the ore story, the peak of the market. But let's take the product and let's put it -- let's take the money and let's put it into downstream, building markets, solar reflectance, building our technical capabilities. By product credits like we're doing in Calais. I believe longer term, that's going to create much better shareholder than us Huntsman trying to integrate and operate mines. That's not to say that we don't look at these things and we don't review the optionality there, we have. But just longer-term, I think that we're making the right moves here.
Any other questions before I move to our summation hear from Kimo?
Ladies and gentlemen, you've been very kind to listen to me and I hope the questions met some of your needs. Thank you.
Kurt D. Ogden
Thank you very much. We'll turn the remainder of our time over to Kimo.
J. Kimo Esplin
My two cents on TiO2 is, I get the last shot here. My experience with commodities or at least those utilization rate-sensitive businesses are that margins correlate with utilization rates. And the benzene price in MDI for that 50% of our MDI is component-based and utilization rate sensitive, its current margins are going to correlate with utilization rates, notwithstanding ore price pressure margins will correlate with utilization rates. And you have a copy of our view on utilization rates. We think they will come down from 2011, but stay pretty high for the next 3 years, and that this our view on margins, that they will be well above normalized margins because utilization rates will stay well above normalized utilization rates. I'll move through this really quick, you have been very patient in the time you've spent with us.
Cash flow, I wanted to give you just a general sense for 2012. Interest, taxes, CapEx, restructuring and so forth, we think before dividends in 2012, if you use first call consensus EBITDA, we'll be between $300 million and $400 million of free cash flow, on a normalized 2012 basis, that is without restructuring, about $500 million, of course, working capital is a question mark. When you think about working capital over the last 3 years, we generated $500 million of free cash flow. In 2009, we have consumed $500 million of cash in the last 2 years, obviously, as crude has gone up nearly 80% and so have our raw materials, our working capital has gone up almost 50%.
This next slide is really to give you a sense for that slate of raw materials. And compared to 2009, some of you refer back to this throughout the year in terms of our sensitivity, we try to identify those things that are oil or natural gas based and natural gas sensitive, you can see that the big movers, benzene and butane, have gone up almost that same amount that crude has over the last 3 years.
To reiterate, the timing on the benefit of the restructuring for Textile Effects, you can see really we're not going to see anything until the third quarter of 2012 before you start to see Textile Effects move towards profitability as those folks come out. That's a slide that Paul show -- showed. Someone asked a question about costs, bottom right-hand corner, you can see the restructuring charge, the cash portion was $62 million. And we're going to take another $25 million for a total of $87 million for this project.
CapEx. If you look at it over the last several years, you can see -- about depreciation. Certainly, we underspent in 2009, '10 and '11, we will spend depreciation in '12. I think this looks an awful lot like the douse of the world relative to depreciation over a long period of time as we see growth opportunities, we will continue to explore those. We have about $150 million of CapEx that we spend on maintenance and mandatory. There is a 0 return as it relates to IRR, financial returns, that is what we spend to play the game and participate in this industry and run safe chemical plants, and environmentally sensitive ones. We will spend $150 million of growth capital in 2012 with greater-than-35% IRR projects. Those are unleveraged IRRs that we run. And then of course we've done a few bolt-on acquisitions, not many, I think we spent roughly $30 million in 2012, as we bought small regional system house to type businesses, and then of course some joint ventures.
Taxes. As you can see in the box in the bottom left-hand corner, we haven't given you much of an opportunity to forecast those because they've been all over the place. Maybe that's why EBITDA becomes the primary metric for valuation of Huntsman. It is these NOLs in Europe that are offset with valuation allowances so they are not on balance sheet. As we generate income, we bring them in and effectively reduce our tax rate to 0 in those countries. So in the top right hand, you can see some anecdotal countries, France, U.K. and Spain, we have sizable NOLs, we are profitable in all of those countries, and as we generate profits, we bring the NOL on the balance sheet effectively reducing our global effective tax rate. We have losses in Switzerland because of textile effects. As we generate losses, we are not able to book benefits for those losses, and that has the effect of pushing tax rates up. And so it is this mix of profits and losses throughout Europe that is pushing the effective tax rate all over the place. We would expect in 2012, that we would have an effective tax rate around 30%. And cash rates would be below that by about 5%, call it 25%.
Foreign exchange. Real quickly, we are long the euro, and we are short the Swissie. You can see that the Swissie appreciated 15% and the euro appreciated 5%, and net affect was that as a company, we were Swissed by $25 million. Now the Swissie impacted our businesses in -- based in Switzerland Textile Effects and Advanced Materials, we have published roughly $60 million headwind in Swiss franc in those 2 businesses. Some of the other businesses benefited by being long the euro, including Pigments, which is for the most part, a Eurocentric business.
Debt. Since our IPO, when we had over $6 billion worth of debt, we have advertised and emphasized the fact that have brought debt down and we continue to expect to meet our targets of 2 to 2.5x total debt-to-EBITDA. That is our target. We have been consistent over the last several years in saying that's what we will do, and we will limit our acquisition activity in order to hit those target levels. We think those are, when they are sustained, investment grade kind of credit statistics. When you look at our peers, there are in fact, folks, that are at our exact debt-to-EBITDA levels, that have as much as 3 and 4 notches better in terms of ratings than we do. We think that as we sustain these levels of debt, we will be able to achieve those sorts of investment grade-type statistics.
In terms of maturities, you're net debt, bottom-right hand corner, we have recently pushed out some of those maturities, really don't have much in a way of maturity certainly on the bonds, they're all pushed out, but a little bit of bank debt in 2014. We recently called some notes, 2015 notes, so really the only notes -- subordinated notes we have are in 2020 and 2021. $1 billion of liquidity is something that we typically target.
Folks ask us about regions. You've heard a little bit about how Europe is doing, I wanted to give you a general sense for profitability on a cents per pound basis regionally. You can see that Europe, the redline, has been strong, in spite of what we read in the newspaper. Our profitability on a cents per pound basis in Europe today is as high as anywhere else in the world. And fourth quarter was no exception. You can see the trail off in Asia in the fourth quarter, as we saw significant de-stocking that affected pricing and squeezed our contribution margins in Asia. But when you look at the bottom right-hand corner, you can see big countries we have exposure to. As much as $600 million in Germany, $300 million in Spain, nearly $600 million in Italy and $500 million in France, where our year-over-year revenues increased well above what we saw the euro appreciate. So those countries continue to be stable and strong, and that is what we -- we are experiencing in the first quarter as we stand today. We are not seeing significant decreases in demand in Europe. We have in some cases seen a bifurcation of Europe or Northern Europe has continued to accelerate and strengthen and Southern Europe has become a little softer, but in total the region has been pretty good to us.
Peter mentioned our directional guidance for 2012. The market thinks, I believe, of chemical industries in terms of quality, largely in terms of EBITDA margins, that is not how this management team manages the business. We manage it based on return on assets, in IRR. And sometimes, those are inconsistent with the way you look at them. For example, you heard the discussion of performance products, 1/2 of that business is in a sub-10% EBITDA margin business in intermediates. Yet, they have mid-teens return on asset and -- profile and they're very, very consistent. We will keep those businesses in spite of a market that thinks sub-10% EBITDA margins aren't worth keeping. This isn't a management team that will go out and try to groom a portfolio around EBITDA margins. We will manage the business based on return on assets, that is the only way, long-term, we think we can add value. And so you can see in the next couple of years, we think textile effects will be in mid-teens return on asset business. It only has 6% of our capital. So it's it pretty easy if you can get back to $50 million of EBITDA to see this business actually contributing above our cost of capital. You can see that we think pigments is not sustainable out there. It is a commodity, and overtime, it will come back in. We think polyurethanes is under performing and it is the biggest issue we have in the portfolio from a return-on-asset standpoint, because it has 35% of our $6 billion worth of net operating assets. And so that is the area that we focus on, where we have the most invested capital, and where we are underperforming relative to our cost of capital.
Finally, my last slide. I think it's difficult, and I think the market struggles with companies like ourselves that have commodity businesses, particularly, like TiO2 where we are at higher-than-normalized margins. I've tried to just very simply look at it a little different way, and that is, let's agree the TiO2 is $300 million higher than what we would consider to be sustainable, normalized margins. We would suggest that's $200 million, and as we forecast our business in the next 5 to 7 years for budget purposes, that's how we think about it. It is a $200 million sustainable EBITDA business, reduced 2011 EBITDA by that $300 million. But we also believe that as we start to see utilization rates in MDI, that start with 9. 90% are better, we're going to start to see 15% polyurethane margins, which is on the right-hand side, just our average, particularly with our cost-cutting efforts. So we add $200 million and give us credit for these other businesses that we're cutting costs could just get us back in textile effects to more breakeven levels. Now we are going to generate excess cash flow above normalized margins in TiO2 over the next several years, we've suggested that if that's 2 to 3 years, we will generate between $500 million and $700 million of free cash flow after tax, particularly because of the NOLs that exist in those countries they operate in Europe. Give us credit for that. If you believe that, you run it through a very simple calculation and it would suggest at 6x multiple on a normalized EBITDA, this is a $19 stock. If you believe our long-term EBITDA multiple, which is between 6.5x and 7x, this is a $24 stock. That's how we think of the business. I think again, this market struggles with commodity, peak type earnings, and how to value them. And I think you have to normalize them, but [indiscernible] of you on how long you will have those excess margins.
That concludes my thoughts. Happy to answer any questions.
Peter R. Huntsman
I think at this time, what we would like to do is make ourselves available for any questions or comments that any of you might have.
I guess, if I could just start with a few quick questions. You've alluded a few times to improving your working capital management. Do you have a target for working capital days over 4, 5 years? And secondly, you've been benchmarking peak EBITDA off of your existing asset base, if you look at your growth CapEx plans over the next few years, the capacity that comes onstream by, say 2015. Do you have a rough, very wide margin of error slag for what the EBITDA contribution could be in a normalized environment or a peak environment?
J. Kimo Esplin
Sure. The management team has a cash flow component of their incentive compensation plan, that includes working capital. So this is a team that is very focused on working capital, and as Peter mentioned, structural impediments to working capital including shutting a Basel textile effects plant downtime and not shipping textile, dyes and chemicals across the ocean to China to actually manufacture them there. So that is not only a cost reduction program but a working capital reduction program. So yes, we do have them and we would expect that in -- on a days basis, it would come down several days from where we are in 2011. In terms of capital, I mentioned earlier, we don't do projects in this company that have less than a 20% unleveraged IRR, including the biggest projects like our MDI plants in China. We just will not do those projects if they are in the teens sorts of return. So if you think we’re going to spend, on average $200 million a year for spending depreciation on growth capital, that will have a 20% after-tax IRR or better.
Jon M. Huntsman
I'm going to take one matter if I might, please to explain something from our Board of Directors that I think is very, very important for you to understand. Our board is a very active board, a very knowledgeable board, several of them have got -- have many years of experience in the chemical industry. And you probably sensed in my remarks a fairly heavy sense of frustration with respect to the valuation of our stock. And I'd like to just comment for a minute on Mr. Esplin's very fine normalization of EBITDA. When we get -- when we meet as a board and see that some of the analysts and the market, per se, has put us down with TiO2 companies, with respect to the valuation of our stock, that's a very painful thing to accept. We went for many, many years from 2005 to the midpoint of 2011, pretty much level with Dao chemical company. Dao and us we're pretty much looked alike, very much alike, most of our normalized EBITDA ratios were about 6.5, somewhere in that general range. And all of a sudden, whether the analysts did it, whether the market did it, whether we did it to ourselves, I'm not holding out any blame, but we are not a TiO2 company. TiO2 is the normalized tier, we -- that's 1 of our 5 products, it's a very important product. But our normalized EBITDA should be back in the 6.5 range area. And that's the thing that our board has such a difficult time understanding, is as long as we have a plateau with a product, like TiO2, and we see that it's plateauing over 2 or 3 or 4 years, that isn't a spike or a peak product. I was in polystyrene for 20 years, it would spike up, it would spike down. We were in polyethylene, we were in polypropylene. We've been in and about every commodity product you can get in and you move up and you move down. So now that we've normalized and tried to explain a normalized program and taken a big hit in TiO2 to normalize it, we really do believe that we should not be discounted to Dao or other legitimate differentiated chemical companies. So I mentioned that to you because somewhere along the line, we have been hit hard on this, and the value of our stock should be, rightfully speaking, in the $19 to $24 range. We genuinely believe that after 50 years in the chemical business, I've never seen a situation that's been so off balanced as this when we went from $21 a share down to $12 a share, and we called some of your analysts and they said well that's your TiO2 business. You don't lose 50% of the value of your company because one of your products happens to be -- go from 25% to 35% of your profit margin. It just doesn't happen that way, and now that we've normalized it, now that we've tried to explain that in a logical manner, I think it's fair to take a fresh look at our multiple, and see if I'm not right. And see if the market isn't right. And see if our stock isn't truly undervalued compared to our peers. Thank you very much for understanding that.
Kurt D. Ogden
Can we answer some questions please.
Edlain Rodriguez - Lazard Capital Markets LLC, Research Division
This for Peter. Edlain Rodriguez, Lazard Capital Markets. Of course, your Dad makes a passionate plea about the stock valuation and so forth, which is great. You still have another $50 million in share buyback you haven't done. Should we expect the board to take him at his word and start doing something more aggressive in terms of share buyback to pull the value of the company?
Peter R. Huntsman
At this time, simply put, no. I don't believe that we have the authorization to do that. I think that we are focusing our capital on debt reduction. Longer-term, the board will continue to step in if they see it as advantageous to the company our shareholders longer-term to support that demonstrate our faith in the value of the stock. But right now, our emphasis is on our free cash flow, it is in debt reduction. I'll defer to the chairman if there is anything different than that.
Kurt D. Ogden
Any other questions or comments? Anybody? Frank?
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Yes, I think earlier at the beginning of the day, the topic was -- or the point was made that all options are on the table. So I wanted to afford you the opportunity to address what that might mean. And perhaps more specifically, one of the areas that you had looked at in the not-too-distant past was, buying Tronox, you had identified that as an undervalued asset, you were certainly were right in that analysis. So based on what has happened subsequent with that, but what are your thoughts and what are the possibilities, probabilities of combining that company with another company or any other areas that you want to explore in terms of "all options on the table"?
Jon M. Huntsman
I'll let Peter add to the Tronox part and then I'll answer the macro part, is that okay? Thank you.
Peter R. Huntsman
I think, what -- as it pertains, with Tronox I think that we're obviously -- I think we worked very aggressively towards that. We continue to look towards optionality. I think I've been very public in saying that if there is a consolidation in the TiO2 industry, that we would like to be part of that, that we would see ourselves as a candidate for that. But we're not going to be forced into something, we're not going to do anything that will be questionable to creating or maintaining value going forward. I've also said that there are other ends of our business as well. I believe as we look at the Surfactants business, I think that as we look at the other ends of our businesses where we have multiple competitors on a global basis and where there's an opportunity for consolidation, we'll be looking very aggressively into these areas as well. And Tronox is a good example but certainly there are other areas where partnership-ing and combination of businesses would enhance shareholder value.
Jon M. Huntsman
Let me just say from a macro point of view of the company, everything is for sale except my wife and children and our grandchildren and our great-grandchildren. So let's be clear about that. Our focus is shareholder valuation. That's why we're in business. I'm the largest shareholder of this company, I want to put a lot more money into Cancer. Obviously, if the right opportunity came along to us or any other chemical business, at the right price, we would of course be very interested. There's no question, we have to do that, we will do that. If the right merger comes along, where we can reap out and wring out certain synergies that would increase the valuation of our stock dramatically because -- and there are some of these available, and there are some of these that quite frankly would like to talk to us, just like there are other companies who would like to talk to us about acquiring our business, if these valuations reach a point where we feel they would be in the shareholders' best interests, we will always, we have an obligation as a board, to always be sensitive to those situations. And we believe that there will be these opportunities in the future, whether it's 6 months, whether it's a years, whether it's 5 years, I can't yet say, but we do believe that our valuation is way undervalued at this point. We have no interest whatsoever in talking to companies at this valuation level. Thank you.
Kurt D. Ogden
Any other question or comment? Well, again thank you all very much, enjoy your lunch. And soon, we will make ourselves available here for any further questions or comments. Thank you.
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