William McLain: We’ve never given a plant by plant. We said greater than $450 million. And as Mark highlighted earlier in some of our conversations, the first plant is more specialty with our Triton portfolio, so you can expect it to be higher than the other two.
Unidentified Analyst: Okay. Thanks. And then if we think about you saying medical demand, there being some destocking, but getting back to more, I guess, normalization. I was just wondering if that end market is at pre-COVID levels in terms of elective surgeries and the actual overall demand versus some of the inventory adjustments we’re seeing right now.
Mark Costa: Yes, the elective surgeries that are occurring are certainly growing roughly 5% a year and definitely above pre-COVID levels if you look at it. Not a lot, but a little bit. The issue we’re having in medical is not about demand at all. Consumer durables, laptops, TVs, appliances are not being sold nearly as much as they were. Medical is really stable in market. The customers though were very nervous during the supply chain crisis about having enough material. And so they built a lot of inventory to be safe, because you cannot have a problem in getting medical devices delivered in our packaging to the marketplace for obvious reasons. So, they finally got calm that there’s plenty of supply and reliability and started destocking in the second quarter of this year and they’re still doing it through this quarter, but it’s just a destocking event. The markets are solid and expected to be better next year than this year.
Unidentified Analyst: Thank you very much.
Operator: Our next question comes from Mike Sison of Wells Fargo. Mike, please go ahead.
Unidentified Analyst: Hi, this is Richard on for Mike. So just a question on the 2024 outlook. Are you assuming any price improvements next year? We’ve seen prices come down in the third quarter and second quarter despite higher raw material pressures. So just wondering if there’s any price mix improvement that we should expect, new product launches, that type of thing.
Mark Costa: Well, so from a price on an existing product sold this year versus next year on the specialties, we’re not really expecting much price increases except for where we have cost passthrough contracts and the prices will adjust up or down based on where raw materials are going. Now obviously for an increasing raw material environment we will increase prices across the specialties. But in our scenario that we gave you, where raw materials are relatively flat next year to this year. I would not expect to increase prices in the specialties. I do expect prices probably to go up in chemical intermediates, because right now we’re at the bottom of the market, right? We’re at the cash — in the olefin derivatives, we’re at the cash cost of the marginal producer in these markets.
It’s a very challenging market situation right now in olefins. And so, there is an expectation of some normalization of those prices getting better. I mean, the value of the price of propylene relative to oil is about 40% lower than normal. That’s extreme and never ever seen before in the past. So that’s a lot of the compression that we’re facing due to just excess amount of capacity being added, as well as very low demand in a number of applications that use propylene. So there’s some balancing of that that’ll occur even with just the end of destocking and some stable markets growing. So that’s one place where I would expect some prices to improve and margins to improve sort of how we look at it at this stage. I would say the teams have done a phenomenally good job of holding prices at very high levels in this very challenging market that’s created a lot of improvement in our price to variable cost ratio, offsetting some of the volume challenges.
Unidentified Analyst: Great. And as a follow-up, any update in terms of the market for pricing for the product from your Kingsport plant and circular products? How is that progressing moving forward as you move to develop the other large projects?
Mark Costa: Yeah, so pricing is holding up really well. We’re having no issues with the premiums that we need to get for the recycled content related products on the specialty side and having good conversations with our customers on the PET side for the premiums that we need to get — that go in line with the economics that we’ve provided to you. So we feel really, really good about that. It’s an exciting time right now with the methanolysis plant coming — being completed and starting up. We have a phenomenal number of people working hard and making sure that startup process goes well. Back to Frank’s comment, the video is a great marketing tool with customers. It’s an outstanding story when you see these huge piles of garbage, multi-colored garbage, all kinds of types of garbage that we’re taking and running through our process and coming out with a clear pellet.
Customers are very surprised and impressed by the low quality material that we’re using that is headed to — cannot be reused with mechanical recyclers at all. This is going to go to landfill or incineration or really low end applications. And they’re just very impressed that we can take that garbage and turn it into a clear food grade quality pellet. And so the customer engagements around that story of getting things truly out of landfill and incineration, not just using a clear bottle that could have been mechanically recycled, is driving a lot of engagement. The other thing that’s important to keep in mind is, a lot of the applications we’re targeting with this recycle content, both — especially in the PET, are applications where mechanical recycling is not really able to meet the specifications in performance because the quality is just not good enough.
Our product is identical to virgin material made from fossil fuels. Mechanical is not. It’s got integrity issues, color issues. So, we are really targeting those applications where mechanical is not a choice. That allows us to command a better premium than mechanical and support our economics.
Unidentified Analyst: Thank you.
Operator: Our next question comes from Aleksey Yefremov of KeyBanc Capital Markets. Aleksey, please go ahead.
Aleksey Yefremov: Thanks. Good morning. And staying with methanolysis. So there have been many projects in the industry where capital cost estimates have been revised higher over the last year or two. And I believe you presented your return on capital objections for the two additional methanolysis plans a couple of years ago. So is it reasonable to assume CapEx probably needs to go up versus your initial expectations? And if so, how are you mitigating return on capital now?
Mark Costa: Yes, so it’s an important question and one we’re very focused on. The capital headwinds that we encountered in the project here in Kingsport were really isolated to construction quality and productivity issues around pipe installation. And that was a very specific issue. It had nothing to do about the design of the plant or the scope of the plant in what we’re trying to do when we got into these issues here in the last six months. And the way we’re approaching the next two projects, we’re taking a very different approach, using very large contractors that are very capable of controlling those costs in a much better way than what happened here. So we feel we’re in a far better shape. Also, we’re not trying to build a new plant, right?
