Michael Sison: Hey, good morning guys. What was the impact from the lower operating rates in the fourth quarter on EBITDA, meaning if you were at normal operating rates, what would that be? And then is that impact similar for the first quarter? And when do you think you can see your operating rates sort of improve back to normal rates in ’23?
Jim Fitterling: Yes. Just to give you an idea, I would say, probably you saw because of destocking, you probably saw a 10% lower operating rate due to destocking. Rough numbers, Howard, where do you think, million.
Howard Ungerleider: Yes, I would say 10 percentage points. And that’s — I mean, when you think about every percentage point. Yes, look, I would say it this way, Mike. When you look at the sequential decline in probably two-thirds of that EBITDA drop was because of the destocking. And then the other balance was really the seasonal — just a seasonal sequential decline because we’re in more of a Northern Hemisphere business. And obviously, our coatings business typically is a seasonal low point in the fourth quarter.
Operator: Thank you. The next question comes from Steve Byren of Bank of America. Please go ahead.
Steve Byren: Yes, thank you. That 2,000-headcount reduction, how much of that is these assets in Europe that you’re planning to shutter? Or can you highlight what operations, is this commercial or back-office headcount? And then just one other quick one. Your partnership with Mura, when that’s at scale, you’re using the pyrolysis oil as cracker feedstock, how would you expect the profitability of that versus naphtha or ethane-based feedstock?
Jim Fitterling: Sure. Good morning Steve, good questions. 2,000 headcount reduction is not all specific to Europe, although Europe is a big part of the earnings decline that’s driving us to take these actions. The site and asset decisions we’ve made so far are really smaller locations, smaller scale locations where we know they will be challenged through the year. We haven’t released a list of those we’re working through that with the European Works Councils, et cetera, but we will be doing that as we get toward the end of this quarter. But — the $1 billion is really made up of two buckets: $500 million is structural cost reductions. That’s the headcount reductions, that’s productivity and end-to-end process improvement. So we’re really building off that digital work we’ve done, and that would work on improving processes and customer service and then the asset decisions.
And then $500 million will just be reduced spending, turnaround spend, which Howard had mentioned, $300 million, leveraging our volume on lower purchased raw materials, logistics and utilities because we do see some supply/demand imbalances and the ability to do that and just tightening the belt to this environment. So I would say I don’t — it’s not a haircut 5% of the workforce. It will be targeted, and we target around asset decisions. It will be targeted around businesses that need to tighten. It will be targeted around — it’s not just Dow headcount. We will have contractor reductions as well at the sites. And so we’ll look at it that way. On Mura, on our transforming the waste target. Right now, when we talk to you at Investor Day in 2021, the premiums vary by technology.
But they continue to be greater than about $1,000 a metric ton. And the supply demand — the demand is out there right now, and it’s in excess of the supply. I think as the supply increases, there will be pressure on that, obviously. But there’s a big imbalance right now between what the consumer brand owners want and what’s available out there. So I do think you’ll see margin expansion in that part of the segment. There will be some higher costs we’re doing that, but there will — I think the premiums will more than cover that.
Operator: The next question comes from Kevin McCarthy of Vertical Research Partners. Please go ahead.
Kevin McCarthy: Yes, good morning. Jim, I’d welcome your thoughts on the supply side of polyethylene. We’ve seen spot prices start to percolate higher over the last 3 or 4 weeks. So I was wondering if you could comment on where you see downstream inventory levels among converters at this point? And also if I rewind to maybe September, we had a lot of purposeful throttling back of operating rates from Dow and others that dovetailed into winter storm Elliot in late December. I think at least one of your competitors has declared force majeure on a tornado of all things. So if we look at that holistically, do you think there’s enough supply disruption to kind of rebalance the polyethylene market and move higher from here?
Jim Fitterling: Good morning, Kevin. I think there has been enough, obviously, to give good momentum to these price increases in the first quarter. And so I think we will see the margins expand, as I mentioned earlier on one of the other questions. From a supply side standpoint, it’s also worth mentioning that I’m really proud of the team. After winter storm Uri, we took our playbook and we said, how do we — if this happens again, how do we make sure that we don’t have any production losses due to freeze? And we were able to navigate this freeze with winter storm Elliott, and we had no problems with polyethylene plants or crackers. And right now, as we sit here, about 37% of the ethylene capacity in the Gulf Coast is still off-line.
And so that’s an advantage to us. And as Howard mentioned, the only issue we’ve had is with an industrial gas supplier at one of our sites in Louisiana for our Industrial Solutions business. That’s been our only blip, and I don’t think they did the same kind of work. I do think China, to P.J.’s question earlier, China is making an impact. We saw that in December. I think we’re going to continue to see that in the first quarter. Inventories there are managed well. Inventories here, five consecutive months of reduction in the ACC inventory data inventory is 45 days. That’s pretty standard inventory levels. And I think everybody, not just converters, but consumers, brand owners, everybody in the value chain at the end of the year was watching inventories and managing cash into a slow end of the year.
We had a pretty strong end of the year in 2021, and in 2022, we kind of reverted more to the normal slower end of the year dynamics. We do have to keep an eye on capacity coming on. But I would say our outlook for the year is probably about the same amount of capacity off-line as last year. And so if demand kicks back up here and there’s some restocking that happens, that will set us up well for second and third quarter.
Howard Ungerleider: I would also just add that another bright spot that we see as we head into 2023 is the improving situation marine pack cargo and the ability to export out of North America. I mean, I can’t speak for our peers, but certainly, we certainly have ramped our capability. And so that really should not be a bottleneck at least for the first half of the year, and don’t have the visibility in the second half, but certainly as we ramp through the balance of Q1 into Q2, we should see increased marine pack cargo exports out of the U.S.
Operator: The next question comes from John Roberts of Credit Suisse. Please go ahead.
