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Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Let's keep the conversation

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Speaker 1: going now with Jim Fitterling. He is the Doubt chairman

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Speaker 1: and CEO joining us now. So Abigail ran us through

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Speaker 1: the quarter that was. And I want to look ahead

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Speaker 1: here because of course the chemical companies when you think

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Speaker 1: about the inventory glood, you guys were some of the

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Speaker 1: first people to feel it, and then it filtered down

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Speaker 1: through a range of industrial companies. Where are we in

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Speaker 1: that cycle when it comes to demand maybe starting to

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Speaker 1: pick back up, and what that means for inventories.

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Speaker 2: Morning, Katie. Great to be with you, and that's a

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Speaker 2: really good point. As we look back to mid twenty

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Speaker 2: twenty two, coming off of a record peak in twenty one,

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Speaker 2: we started to see a slowdown in the economy and

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Speaker 2: there was a lot of discussion then around de stocking

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Speaker 2: and twenty twenty three kind of be in the bottom

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Speaker 2: of the economic cycle for the chemicals industry. This quarter

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Speaker 2: is the second secutive quarter we've seen volume growth. We

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Speaker 2: saw one percent volume growth this quarter. If you exclude

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Speaker 2: our hydrocarbons and energy sales byproduct sales off of our

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Speaker 2: cracker complex, you see five percent downstream demand growth.

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Speaker 3: So that's pretty strong.

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Speaker 2: And with the guidance we gave for second quarter, which

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Speaker 2: is about a two hundred million dollar improvement in earnings

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Speaker 2: in second quarter, that will get us to positive year

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Speaker 2: over year comps. And so that's to me as a

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Speaker 2: bit of a sign that we're starting to see the

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Speaker 2: turn happening. We typically in our industry tend to lead

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Speaker 2: into a slowdown and then we also tend to lead

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Speaker 2: out of it when things start to turn.

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Speaker 1: So maybe that turning point, of course, we're approaching it.

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Speaker 1: Maybe it's already here. But let's situate this conversation in

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Speaker 1: the macroeconomic backdrop. Of course, if you take a look

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Speaker 1: at what markets are pricing in right now now, the

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Speaker 1: first rate cut has been pushed to December. I remember

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Speaker 1: when people were saying they would start in March. And

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Speaker 1: if that's true that interest rate cuts are delayed, does

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Speaker 1: that delay a stronger rebound in demand for durables for

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Speaker 1: construction from your customers. How are you thinking about that?

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Speaker 2: Well, we have strong demand growth in several sectors right

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Speaker 2: now before any rate cuts that I think is going

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Speaker 2: to continue through the year. If you take a look

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Speaker 2: at automotive, I think We've seen very strong growth there.

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Speaker 2: Industrial electronics, whether it's through automation or data centers or

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Speaker 2: chip production. A lot of our silicones business which goes

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Speaker 2: into thermal management, a lot of our infrastructure business and

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Speaker 2: wiring cable in our pnsp are, packaging, especially plastics business,

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Speaker 2: are seeing strong demand growth. Pharma in our industrial intermediates

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Speaker 2: business is seeing strong demand growth. And then the core

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Speaker 2: of our business, our packaging business, is seeing good volume growths.

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Speaker 2: Our whole polyethylene portfolio was up. Chemical shipments in the

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Speaker 2: first quarter. We're up almost four percent year over year,

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Speaker 2: four point three I think in the month of March,

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Speaker 2: and so that's a good sign. And on a global

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Speaker 2: basis up three point six percent. So I think you're

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Speaker 2: starting to see that in the industrial markets, telecommunications market,

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Speaker 2: consumer electronics, automotive packaging, we're seeing really resilient signs there.

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Speaker 2: When you get to housing, those affects things like our

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Speaker 2: coding's business for paints, our poly Eurothane's business for insulation,

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Speaker 2: as well as for furniture, embedding, and durable goods like appliances.

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Speaker 3: Those tend to start to move.

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Speaker 2: When you see existing home sales move up or new

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Speaker 2: home sales move up. Permits for new homes are starting

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Speaker 2: to inch up. Existing home sales still relatively flat. But

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Speaker 2: in our experience, once you see a couple of rate cuts,

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Speaker 2: you see a pretty immediate step up in those demand

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Speaker 2: drivers for those businesses. So that's good. You mentioned lower

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Speaker 2: feedstock and energy costs. I would say we saw about

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Speaker 2: a ten percentage point increase in operating rates in the

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Speaker 2: first quarter. A big portion of that was in Europe.

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Speaker 2: Energy costs were forty seven euros a megawatt hour. A

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Speaker 2: year ago, they were twenty seven euros a megawatt hour.

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Speaker 3: In the first quarter.

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Speaker 2: We took advantage of that, and with our low cost

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Speaker 2: positions in Europe, we saw a pretty improfitability there.

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Speaker 1: So big improvement there in that measure. But let's go

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Speaker 1: global right now. You brought up some of the global influences,

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Speaker 1: but let's look about global chemical prices. Of course, when

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Speaker 1: it comes to the last eighteen months, they've been pretty depressed.

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Speaker 1: You've had some excess supply from China, for example, being

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Speaker 1: brought on. How confident are you that we're maybe past

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Speaker 1: the bottom or do you think there's more to go.

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Speaker 2: We saw pricing move up through the first quarter in

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Speaker 2: our ethylene and polyethylene franchises, so that's a positive sign

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Speaker 2: both price and volume moving in the right direction. We

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Speaker 2: also saw prices move up in our silok Says in

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Speaker 2: Silicon's business in the first quarter, and operating rates move

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Speaker 2: up there as well.

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Speaker 3: So two positive trends.

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Speaker 2: And that leaves again the construction related businesses who have

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Speaker 2: yet to move up. So I would say we're seeing

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Speaker 2: that underlying demand strength even in China.

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Speaker 3: We were up in volume in our.

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Speaker 2: Industrial intermediates business and in our polyethylene business we were

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Speaker 2: up double digits.

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Speaker 3: In the first quarter in China, and so I think

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Speaker 3: that shows.

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Speaker 2: You just what it cost advantage we have in the

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Speaker 2: Americas to be able to supply that demand.

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Speaker 1: Interesting comments around China, of course, from automakers to Apple,

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Speaker 1: there's been a lot of fear about China, but it

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Speaker 1: sounds like you are moving past that. But let's talk

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Speaker 1: about Europe. When you think about Europe's chemicals industry, what

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Speaker 1: does the earning cycle look like there? We know the

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Speaker 1: chemical companies in the US have been going through it, but.

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Speaker 2: What about we have a bit of an advantage position

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Speaker 2: in Europe because we crack light in Europe we crack

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Speaker 2: more pro paine in our crackers in Netherlands and in Spain,

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Speaker 2: and so propaane to nap. The spread has increased pretty dramatically,

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Speaker 2: and that's a cost advantage that we have that others

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Speaker 2: in the market don't have. We're focused on the domestic

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Speaker 2: market and so the thing we want to watch long

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Speaker 2: term in Europe is can these energy costs stay low

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Speaker 2: like they are today and what happens to the downstream demand.

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Speaker 2: We've seen some announcements of higher cost assets in Europe

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Speaker 2: shutting down. We've seen some announcements on energy intensive industries

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Speaker 2: like steel shutting down. We have to watch the demand

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Speaker 2: and see what happens with our downstream customers in places

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Speaker 2: like appliances in automotive and make sure that our footprint

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Speaker 2: is sized to serve that market long term. Clearly, the

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Speaker 2: cost advantage is in Canada, the United States, Latin America

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Speaker 2: and the Middle East with Europe have been moved into

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Speaker 2: the high cost position last year. In Asia Pacific kind

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Speaker 2: of at the top end of the curve, and what

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Speaker 2: sets the pricing for them is the price of oil.

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Speaker 1: And I mean speaking of cost advantages, you take a

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Speaker 1: look at your US gas costs advantage. This is from

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Speaker 1: of course, Bloomberg Intelligence, that advantage versus your global competitors,

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Speaker 1: it appears to be heading back towards record levels. How

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Speaker 1: much of a tailwind was that to your first quarter earnings?

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Speaker 3: You had over one hundred million dollars of improvement in.

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Speaker 2: The first quarter just from lower feedstock and energy costs

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Speaker 2: around the globe. The European numbers I quoted you on

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Speaker 2: an electricity standpoint, as well as the US natural gas advantage.

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Speaker 1: All right, Jim really appreciate that. Of course is Jim

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Speaker 1: Flitherling of Dow He is the chairman and CEO