So the need for chemical recycling is absolutely necessary in the long term. There’s this – I haven’t run to anyone who thinks that both mechanical and chemical aren’t necessary. So demand condition is very clear. The question is how do they meet those conditions, right? And at the moment, there’s been a ramp-up if you go look at the data of imports of our PET into the U.S. and Europe that is affordable. And that’s a way for them to manage cost and hit their targets in the short term. The dilemma for that is it doesn’t really solve the actual problem, which is U.S. consumers, European consumers want waste out of their environment, right? They don’t want to be a solution to China’s trash problem, right? And so, they’ve got to work their way through that on the economics versus what the real goal is, which is addressing local recycling.
And so, as they’re sort of in the situation of where our PET prices are relatively low right now and imports are available versus the long term, which regulation is certainly going to drive a requirement for higher recycling rates within the U.S., within Europe, how do they sort of make those choices and decisions. So it’s just taking us longer to work through these contracts. I’m confident in the end, these brands will focus on what is the correct thing to do for the U.S. and Europe sort of waste issues, but it’s just taking us longer to negotiate the contracts than we expected.
Frank Mitsch: I appreciate that. I mean, it seems like a slam dunk. You guys seem to be the best game in town for them to get to that chemical recycling, which is superior mechanical recycling and yet it’s taking a little bit slower. Just one other question. In the prepared remarks, you talked about a Patagonia partnership where you’re recycling its unusable apparel –unusable apparel, what is that? Is that like off-spec products? And is this something that – can you provide a little more color on that? And is this something that you’re looking to expand with other consumer brands?
Mark Costa: It’s a great story. And Patagonia is by far the leader like Europe around recycling. Patagonia has a take-back program. So it’s an active program with their customers to say when you’re going to – instead of throwing your garment away, your fleece vest or whatever it is you have, drop it off at a store and we’ll take it back, so it doesn’t end up in landfill. So it’s actually a genuine circular program to prevent textiles being thrown away. The second largest source of plastic waste in landfills or incineration are textiles after packaging. It’s a huge problem. And so, they are truly forward-leaning when it comes to anything environmental way ahead of anyone else and they really do their science on it. So they’re taking back all these garments, and then we’re shredding them and recycling them and putting it back into fibers, in this case, Naia fibers for some of their products.
So it’s a genuine circle for the textile industry. So it’s a program we certainly want to expand and do with other companies. If you think of all the fashion brands out there where their whole business model has been centered on buy things and then throw away and buy new things with the regulations that are coming in Europe around that waste, which is the next round after packaging regulation and as well as the consumer pressure on waste that exists here as well. This is another great circular story. And we can take ultimately this back into the – our CRT to make Naia fibers or we can take the textile back into the polyester plant to make polyester fibers – chips for polyester fibers. So it gives us a lot of opportunities to work on there. These are complicated programs.
I wouldn’t say that the volume is going to be particularly high anytime soon. But it is a model that has to be developed to build a future where we have waste on environment and with the new technology, when you think about the Texas project, 90% lower carbon footprint, almost close to a zero carbon footprint plant. And that’s extremely compelling, not just on the waste side, but on the decarbonization side. So we’re very excited about what we can do for the marketplace.
Frank Mitsch: Very helpful. Thanks so much, Mark.
Mark Costa: Yes.
Operator: Our next question comes from David Begleiter of Deutsche Bank. Please go ahead.
David Begleiter: Thank you. Good morning. Mark, on the Longview project, if you could reach FID in Q3, what’s the timeline from there for construction and start-up?
Mark Costa: Yes, that would have a plant sort of coming online in the second half of 2027.
David Begleiter: And with the cost, how would the cost compared to Kingsport?
Mark Costa: The capital costs are different. The methanolysis unit, it will be much cheaper than the Kingsport plant to build because there’s a lot of sort of lessons we learned as we’ve shared in past calls around how to sort of be more effective in building a plant, right? So we certainly don’t intend to have the construction issues that we ran into. And there’s a lot of learning both in the construction as well as operating the plant now that gives us much better insight on how to improve some aspects of the plant, all of which will make the plant cheaper to build. So we feel good about that part of the plant coming in lower than Kingsport by a meaningful amount. But the difference is Kingsport had a huge amount of polyester lines and all the infrastructure for handling materials into the plant and out of the plant that we could leverage as well as energy infrastructure that was already in place here that was leverageable.
We didn’t have to add energy and steam infrastructure. So when you go to the Longview plant or the France project, you know the methanolysis one part is cheaper, but you’re adding polymer lines, you’re adding – and you have a lot of infrastructure you need to build around this facility that doesn’t exist in either of those locations. So the total capital cost turns out to be higher. Unfortunately, we’ve got great incentives with the DOE grant, that $375 million is extremely helpful in supporting the economics of the project, offsetting inflation and paying for this add of scope that we did to the plant with this thermal battery and solar facility that allows us to get to that 90% reduced carbon footprint I mentioned. And then the French plant, same thing, it’s cornfield, so there’s infrastructure you’re having to add that’s sort of more and there you’ve got a biomass steam plant you’re building as opposed to leveraging existing energy infrastructure at the Tennessee site.
So it is – each project is quite different in scope and what it’s building and both projects have a lot of incentives to support it. We haven’t disclosed the full amount from France, but it’s an attractive amount of support as well. I mean, I have to say the French government through everything has been incredibly supportive on incentives, on permitting, on helping make sure the policy makes sense in Europe as much as they can. So we really appreciate all their support and everything that they’ve done to enable that project.
David Begleiter: And Mark, I could ask just on fibers and obviously strong top-line driven by Naia. I read your prepared comments. How should the top-line trend in fibers as you move through the rest of the year?
Mark Costa: I think that the fibers trend from a volume point of view is a bit less in the back half of the year than the first half. So volume and earnings will be a little bit less in the back half of the year. And it’s just timing of customer orders. It’s sort of normal. We’ve always talked about this business. The order pattern of the customers is a little bit unpredictable across the year. So it’s just that. But the tax sales side will continue to grow and provide earnings growth. The tow volume will obviously, as I just said, will come off a bit and the back half will be a little bit lower than the first half.
David Begleiter: Thank you very much.
Operator: Our next question comes from Jeff Zekauskas of JPMorgan. Your line is open.
Jeff Zekauskas: Thanks very much. What’s the depreciable life of the Kingsport methanolysis plant?
Mark Costa: Hi, Jeff, good morning. The depreciable life you can just think about around 20 years for the Kingsport facility. And honestly, that would be true for each of the large circular recycling plants that we’re building.
Jeff Zekauskas: Great. And in terms of the volume growth in the quarter, additives and functional products shrank a percent. Which of the subcategories declined in volume in the quarter? And in advanced materials, where you were up 4%, how would you compare what happened in specialty plastics to inner layers to performance films? Did they all grow? Did some of them shrink?
Mark Costa: Sure, Jeff. A nice compound question. We’ve got two segments in one. So on AFP, we were sort of net down 1%, which I call mostly flat. And there are meaningful moving parts in that, Jeff. Coatings and care chemicals actually had very good growth sequentially into the first quarter. And then we had much lower specialty fluid bills and heat transfer fluids. And those two sort of offset each other. Ag was its own unique dynamic, right? So year-over-year, there’s still destocking relative to last year. So demand is down. But we did see more than expected sequential improvement in Ag demand from Q4 to Q1, which was just less – it turns out they didn’t need to destock as much as they thought that confidence about the ag season this year.
So in North America, I would say destocking is over. There is still some residual destocking in competitive dynamics for our customers, not us but for our customers going on in Latin America. So there’s still some of that destocking to come to an end in the future, but the vast majority of our business is focused on North America. So for us, we’re feeling pretty good about the ag business and how it played out. Regarding AM, we had a very strong recovery in the durable space. So sequentially, durables were up 15% from Q4. They were up significantly relative to last year. So that was a great improvement. We saw also shrink in cosmetics sequentially grows, shrink up 15% and cosmetics also have a good sequential growth. And so those were all good, but there’s still a lot of destocking offsetting some of that growth in medical that’s still going on.
And there’s a tough comp on the performance films side. Last year, we had a very strong loading of channels in China orders. And with the auto markets basically being flat globally, but down in China, the demand was not nearly as good in performance films this year as it was last year against that tough comp. And the interlayer part was sort of flattish with builds.
Jeff Zekauskas: Okay. Great. Thank you very much.
Operator: Our next question comes from John Roberts of Mizuho. Your line is open. Please go ahead.
John Roberts: Thank you. Sounds like the new Kingsport plant at the EBIT level will be modestly above breakeven in the second half. Do you still expect to get to corporate average or higher EBIT margins for that facility? And what happens with the other segment here, as Kingsport moves out of other and you begin spending on Longview?
Mark Costa: Good morning, John, and thanks for the question. Just as a reminder, as we’ve highlighted earlier, we’re on a pathway to the $75 million of incremental EBITDA. I would point out, obviously, in 2023, we had a net investment in the other and an expense of roughly about $25 million. So you can think about EBITDA growing from roughly consuming 25 to about 50 positive for the year. As we’ve highlighted, it took us a little longer to start-up here in Q1, and that’s the reason that other ran over on the EBIT view. As we transition in the second half, we expect mostly all of the EBITDA growth to occur in the second half and that will be primarily within Advanced Materials. And that’s also why you see our confidence in the range that we provided for AM overall.
