Operator: Our next question comes from Laurence Alexander with Jefferies.
Laurence Alexander : Two quick ones. First, on the renewables capacity, will that inventory build show up on your P&L? Or will it be separate? And can you give us a sense for the magnitude? And secondly, on the end market comments that you’re hearing from customers, I guess it looks from your presentation is if the overall theme is the industrial recession driven by destocking to recalibrate, but underlying demand is pretty solid — is pretty stable outside the construction markets. How confident are your customers on that? Or — and when do you think they need to — or — and how much warning do you think you would have if they need to recalibrate?
Mark Costa : So I’ll let Willie take the first question. I’ll take the second.
Willie McLain : Sure. On the Kingsport methanolysis project, obviously, we’ve built out the supply chain. We already have the key raw materials and lease cycle materials as part of our inventory here at year-end as we’re preparing for a startup next year. So you can think about there’s no significant impact of transitioning from fossil fuel feedstocks to recycled content as we go from ’22 to ’23 as we think about our projects, second U.S. project and the project in France. Again, we could have different operating models in the regions that those are not significant working capital builds.
Mark Costa : When it comes to your end market question, when you think about end market exposure in three buckets, right? The one that’s most impacted by this sort of manufacturing recession is durables and building construction. The 40% down in durables, as we talked about earlier, down in building construction in the fourth quarter in AFP. So those markets are being very heavily impacted. And that destocking relative to the retail data is pretty significant relative to end market demand, which is still quite weak. So there’s that. We do think destocking by definition as in at some point. It’s hard to say exactly when, but we’ve told you what we’re assuming, and you can factor what you want to believe into the models. When it comes to auto, auto demands are already at recession levels all last year, right?
So that second bucket, which is a huge driver of profit for the industry as well as for Eastman, probably has limited downside and more upside as we go through this year, even though we are going into an economically or already in an economically challenged area where consumers have discretionary choices on where they want to spend money. So we do think that’s going to sort of be stable and sort of modestly improve. And within that mix, I should have also said earlier, we are levered to the luxury market with all of our products because they’re very high-value products that we’re selling. And that part of the market is likely — has held up better last year and certainly going to, I think, hold up better this year in sort of these economically sort of expensive times when it comes to interest rates.
And then the third bucket, which is about half of our revenue is what we call our stable markets. This is medical, consumables, ag, food, feed, all these sort of end markets are water treatment that are very stable. Now we saw quite a bit of destocking even in the stable markets in the fourth quarter across the entire company as people were trying to get rid of high-cost inventory, generate cash for themselves. So that was a big part of the headwind too less than a percent basis, but happening everywhere as part of the challenge. There, we see that destocking playing out because their markets are stable. So there’s not a lot of destocking they can actually do. So that starts to really help stabilize as we go through this quarter into second, the overall revenue base across the company.
