Ladies and gentlemen, thank you for standing by. Welcome to the Covestro earnings call on the Q2 2020 results. The company is represented by Markus Steilemann, CEO, Thomas Toepfer, CFO, and Ronald Köhler, investor relations. During the presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If any participant has any difficulty hearing the conference, please press the star key, followed by zero on your telephone for operator assistance. I would now like to turn over the conference to Ronald Köhler. Please go ahead, sir.
Thank you. Good afternoon, and welcome from my side for our second quarter conference call. As usual, for your information, we have posted all the documents, the financial report at our IR webpage, and I also assume you have read our safe harbor statement. With that, I would like to turn over to Markus.
Thanks, Ronald, and a very warm welcome also from my side. This is Markus Steilemann speaking, CEO of Covestro. Good afternoon and good morning to our listeners from the U.S. Before we go through the details of the second quarter, I would like to begin with really exciting and far-reaching news. Our new vision, we will be fully circular. Climate change, growing world population, increasing urbanization, global developments like these are enormous challenges. We at Covestro want to help overcome them with our multitude of innovative products and solutions. We strongly believe that the high-quality polymers and their components that Covestro develops and produces are the key to a sustainable future. Our vision clearly states we are doing everything we can to realize the circular economy, which ultimately is a great social transformation project to make the world climate neutral and to protect its dwindling resources.
Guided by this long-term strategic vision, we will anchor the principle of the circular economy within the entire company in order to fully implement it. We are working on a comprehensive set of strategic and operational goals that will lead us toward this long-term vision. We will pursue this path consistently and with commitment in the interest of our customers, suppliers, employees, and the capital markets, to name a few of many important stakeholders. While striving to establish circularity in our value chains, we particularly focus on four areas. Firstly, alternative raw materials. Secondly, energy-efficient, innovative recycling technologies. Thirdly, renewable energy. Last, cross-industry collaboration for joint solutions. On the next page, we provide examples for each of those four areas. Let's start with the field of alternative raw materials.
Many of you will be familiar with our breakthrough solution in polyurethanes to replace about 20% of fossil feedstock by carbon dioxide and polyols. Because we have already talked about this innovation, I'd like to highlight another marketed product from our coatings, adhesives, and specialty segment, a bio-based hardener for automotive coatings. The carbon basis of this product is up to 70% made from renewable raw materials. Through this, we enable manufacturers to optimize the carbon dioxide footprint of their products. Without any compromises with regard to protective functions and appearance, this final top coat for cars requires considerably lower use of fossil raw materials than in conventional systems. We were able to prove this by collaborating with automotive group Audi and the coating experts of BASF Coatings. In the field of recycling, I'd like to highlight recycled polycarbonates.
As consumers want sustainable products, we are helping manufacturers to meet this demand. Covestro developed new polycarbonate grades from post-consumer recycled, or in short, PCR content, such as water bottles, compact disc, and automotive lighting. In a closed-loop recycling system, the materials are collected, sorted, shredded, and cleaned. Reprocessed into granules, the recycled polycarbonate is then compounded with virgin resins to strengthen the properties. Finally, these PCR grades are used in the production of laptop covers, mobile phone chargers, printers, copiers, and other electronic components for a second life. As an example of renewable energies, Covestro entered the, at the time, world's largest corporate supply contract for offshore wind energy with the Danish company, Ørsted. Starting in 2025, Ørsted will provide 100 MW of green electricity for 10 years, generated in a newly built wind farm in the North Sea. The Ørsted wind farm will be implemented without public funding.
This supply contract covers roughly 10% of Covestro's electricity consumption in Germany today. As an example of cross-industry collaboration, I'd like to highlight this PUReSmart, a European consortium launched in the beginning of 2019. This consortium is an end-to-end collaboration spanning the entire polyurethane reprocessing value chain and gathering nine strong partners from six different countries, coordinated by our Belgium customer, Recticel. In this cross-industry, cross-country collaboration, we seek ways to transition from the current linear life cycle of polyurethane products to a circular model. To summarize our new vision is to be fully circular. Our endeavor towards this vision has already begun. With the financial highlights on page four, I'd like to turn to the results of the second quarter 2020. Current times are marked by the global coronavirus pandemic and its consequences in all areas of our life.
While we globally continued business operations in the second quarter, our daily focus was to take care about the safety of our employees and business partners, to ensure our ability to deliver to customers, and to secure a strong liquidity position. As expected, our core volume declined significantly by 22.7%. We achieved an EBITDA of EUR 125 million, which was above market expectation. Despite the massively negative volume impact of the pandemic, we achieved a positive free operating cash flow of EUR 24 million in the second quarter of 2020. EPS came in negative at EUR -0.28 per share. Despite continued high uncertainties in our economic environment, we confirm our full year guidance for this year. Let's move to page number five. We introduced the volume chart on this page a quarter ago to illustrate the weekly regional impact of the coronavirus pandemic on our business.
The key observation is exceptionally high volatility globally. While overall volumes sold in our core business fell by 22% compared to the second quarter 2019, the monthly breakup shows significant dynamics. While we recorded the strongest year-on-year monthly decline in April with group volumes down by 32%, we observed a sequential improvement since mid of May. June core volumes came in at -8% year-on-year. We estimate that the pandemic impacted our global second quarter core volumes with -27% year-on-year. In our pre-corona budget, we assumed positive core volumes of around 4% in the second quarter. Looking at the impact by region, the volume numbers reflect the global sequence of the pandemic outbreak. In China, we recorded the earliest volume impact, followed by a so far strong recovery. Since May, monthly sold core volumes were above previous year, however, with high weekly volatility.
In Europe, we recorded the strongest year-on-year decline in mid-April. During the quarter, various European countries were hit by the pandemic in varying intensities and timings. Since May, our core volumes followed a relatively stable sequential upward trend. In the U.S., we witnessed the latest volume impact by the pandemic. The recovery path has been lagging the other regions with a volatile upward trend since May. To illustrate what we mean with volatility, the depicted volume improvement towards end of June is the result of one weekly data point that includes one big customer order. Looking into July, we started the third quarter by continuing the volatile path of sequential recovery. Core volumes in July appear above June, but still somewhat below previous year. In a nutshell, the recorded pandemic impacts and subsequent recoveries followed exceptionally volatile dynamics. Along these lines, our visibility was and remains exceptionally low.
Let's turn to page number six. Page number six summarizes how we managed the crisis. In response to the unprecedented negative impact on our business, we realized substantial cost savings, established a solidarity pact for our global workforce, and secured a strong liquidity position. Let me highlight 3 points. We entered a far-reaching solidarity pact in May. This six-month pact includes a temporary salary reduction of 6.7% for the non-managerial workforce. The agreed salary reduction increases throughout the managerial staff to 15% for board and supervisory board members. While this pact was voluntary for all managerial employees, the acceptance was extremely high at close to 100%. The quoted numbers apply for Germany. Subsidiaries outside of Germany have implemented comparable country-specific measures to reduce cost. I'm truly delighted by this level of solidarity to the company among the Covestro workforce.
During the past weeks and months, we continuously adjusted the utilization rates of our production assets according to the development of customer demand. Globally, as of July, assets utilization rates for MDI and TDI are almost back to normal rates. This is also true for polycarbonates in Asia Pacific. Utilization rates for all other products continue at reduced rates in line with demand. Our leading production and process technologies have proven their scalability in quickly adjusting operating rates and reliability in safe operations. On the cost side, we implemented short-term cost savings in total of more than EUR 300 million. In the second quarter, cost savings substantially contributed to earnings. While these cost savings are temporary by definition, we also further executed our structural cost and restructuring program Perspective.
As announced, with full year results in February, we had set a target of reducing global headcount by 400 to 16,800 by year-end. We can now report that we have achieved this goal six months earlier by end of June. We are working on a further reduction of the global headcount by end of 2020. Now let's turn to page number seven. Here, I would like to highlight some volume development by region, and as a concession to the exceptional time, also by industry in detailed numbers. The decline of global core volumes was strongly impacted by a tough business with the automotive and transportation industry. Demand in Europe and North America were even worse in terms of year-on-year rates. Demand from auto in China ended the quarter on par with previous year.
Demand from the furniture and wood industry in China also finished the quarter with positive double-digit growth rates year-on-year. Global volumes in the furniture industries were down approximately 30%. Global volumes to customers from the construction industry declined by approximately 15%. Here, volumes for polyurethane-based insulation were down by approximately 20%. Polycarbonates realized double-digit volume growth, driven by demand for resin used in pandemic-related protective gear and face shields. Volume sold into the electric, electronics, and appliance industry partly benefited from extra demand from consumers who established their home offices with new IT equipment. Nonetheless, global volumes decreased also here by approximately 15%, while volumes in China were back to single-digit growth. The positive highlight among the remaining diverse industries were attractive volume growth rates in global medical applications in both the polycarbonates and coatings adhesive specialty segments.
Here, volumes grew by approximately 25% year-on-year, for example, driven by high demand for housing of respirators. Looking at customer industries by region, we recorded low double-digit declines in auto and electro in Asia-Pacific, and single-digit declines in furniture and construction. Please note that shown volume growth rates of -8.4% in Asia-Pacific, and at the same time, 5.5% in China, imply declining volumes of 33.8% in the rest of Asia-Pacific. In EMLA, volumes declined due to the pronounced weakness in auto and furniture. In electro and construction, volumes declined at low double-digit rates. Similarly, in NAFTA, demand was weakest in automotive. All other industries declined low double-digit. With this, I now hand over to Thomas for the full set of financials. Thomas, please.
Yes. Thank you, Markus, also hello to everybody on the call from my side. I'm on page eight of the presentation, where you have the sales bridge. You see a year-on-year decline of 32.9% for the second quarter of 2020. The negative volume impact of the coronavirus pandemic led to a 22.3% year-on-year sales volume decrease. That is the EUR 712 million that you see in the bridge. Moving to pricing, the lower selling prices, mainly PUR and PCS, negatively impacted the sales by 9%. That is the EUR 290 million that you see. It's important to note that while in 2019 it was mainly increased competitive pressure that resulted in declining selling prices, the movement that you now see in 2020 are rather driven by a lower feedstock price environment.
I would also like to emphasize that sequentially, the selling prices only declined by 3%. Moving on to FX rates in the bridge, they were virtually unchanged, affecting sales by -0.1% year-on-year, driven by the weakness of some emerging market currencies. While on the other hand, sales were helped by a stronger U.S. dollar. Last but not least, portfolio changes reduced our sales by 1.5% or EUR 49 million in Q2, and you have the details of that in the bullets on the right-hand side of the page. Let's move to the next one, page nine. As you can see, in Q2, we generated an EBITDA of EUR 125 million, which was above the market's expectations. Nonetheless, the decline of 72.8% compared to previous year was obviously very steep.
As a consequence of lower demand from certain customer industries, our product mix was affected unfavorably, and this resulted in a relatively high negative volume leverage of 47%, and you find this also on the bullets on the upper right-hand side of the page. Moving on, lower selling prices, as commented before, were only partly compensated by a relief of lower feedstock prices, and as a result, the year-on-year pricing delta was a EUR -100 million. FX effects to EBITDA were a + 1.6% year-on-year, despite a slightly negative effect that we just reported in the sales bridge, and the difference in absolute numbers is very small and mainly linked to transactional effects. Last but not least, the line other items contributed positively with EUR 91 million, and the key contributors were short-term cost savings and lower provisions for short-term bonuses.
Currently, these bonus provisions for 2020 run at zero. I would just like to emphasize that excluding a prior year one-time gain of EUR 19 million, which we recorded in our cash segment, the line other items would have even amounted to positive EUR 110 million, and that is obviously a function of the cost saving and efficiency measures that we implemented. With that, let's move into the business unit and segments. I'm on page 10. If you look at our Polyurethanes segment on this chart, we faced a core volume decline of 25.9% in Q2. The polyols recorded the largest negative decline rate, followed by TDI and MDI. Obviously, the key reason for the declines in all key industries was the global impact of the coronavirus pandemic. The Polyurethanes EBITDA, as you can see, turned negative in this quarter.
To give you historical reference, this segment had already experienced one quarter of negative earnings in Q1 2009 during the peak of the global economic crisis in that year. Drivers of this year's earnings were the pronounced volume decline and the negative pricing delta compared to prior year, and especially polyols earnings were burdened by lower volumes, the take-or-pay contracts in place with our propylene oxide JV partner, and competitive pressure. Let's move to polycarbonates on page 11. As you can see, core volumes declined by 14.4% compared to prior year.
In addition to the details that Markus already presented on the impact of the pandemic, I would like to highlight the double-digit core volume growth in China that this segment recorded in Q2, and also smaller applications like our global business into the medical equipment as well as the European business with reusable 20 L water bottles grew very nicely at double-digit rates. Thanks to shifts between customer industries and also new customer wins globally, the polycarbonates management team mitigated some of the adverse coronavirus impact on this business. Compared to prior year, the EBITDA decreased due to lower volumes and negative pricing delta to EUR 96 million, as you can see. However, sequentially, a double-digit EBITDA margin was maintained virtually unchanged at 14.8%. This development was supported by a positive sequential pricing delta. Let's move to page 12, where you see the CAS segment.
You can see, the segment posted a year-over-year volume decline of 25.3% affected by the coronavirus pandemic and the continued demand weakness from customers for automotive applications. As the volume leverage of CAS is highest among all three segments, the lower volumes largely contributed to the strong EBITDA decline of 60%. Again, corrected by the one-time gain of EUR 19 million that I was mentioning earlier, which was included in prior year's EBITDA. The year-over-year decline would have been smaller, still amount to 49%. With that, let's move to the cash flow on page 13. Here I would like to begin with two quarterly highlights that are not so clearly shown in the table on the left-hand side.
First of all, I think it's important to note that we recorded a positive free operating cash flow of EUR 24 million, despite the massively negative volume impact of the pandemic, and I think that's a good result. Secondly, the working capital contributed positively with EUR 42 million in Q2, and I also think this is a good result. In this context, our working capital to sales ratio was 19.9%, and for the full year 2020, we assume that we can again reduce our working capital and strive to end up within the targeted working capital to sales ratio corridor of 15%-17%. Changing to the year-to-date cumulative view of the first half of 2020.
As you can see, our free operating cash flow was at negative EUR 225 million. This is relatively stable, provided a simultaneous EBITDA decline of more than EUR 500 million, which we had to digest. As you can see, working capital was impacted by negative contributions from lower payables, reflecting lower feedstock prices and lower feedstock volumes in line with lower demand. On the other hand, we continued our very strict inventory management and even achieved a slight year-on-year reduction in stock levels if you measure it in kilotons. As you can also see in the table, CapEx came in at EUR 286 million. That is fully on track towards our full-year guidance of around EUR 700 million.
You can see below that we paid income taxes of EUR 102 million, despite a positive tax income of EUR 25 million, which we recorded in our P&L account, and that is obviously a consequence of a phasing in the payment structure. Last but not least, the last line item in the table shows you that there is a positive swing of more than EUR 300 million in the others line, and that is mainly driven by significantly lower cash out for bonus payments. In 2020, we paid roughly EUR 40 million for bonuses for 2019, while the year before, so in 2019, we paid about EUR 350 million for the year 2018.
That is the difference that I was just alluding to, and this effect once again demonstrates the kind of automatic stabilizer that is built in our bonus system to protect our cash and earnings in times of lower group profitability. Let's move to page 14. As you can see, we maintained a strong balance sheet and liquidity position. The total net debt to EBITDA ratio increased to 2.9 x at the end of Q2, and we maintained a rather stable equity ratio of 42%. You can also see that after the pension provisions had decreased by approximately half a billion at the end of Q1, they ended again close to the original levels by the end of Q2. That is a function of the discount rate, obviously.
I would also like to mention that you have probably noted that on June 2nd, 2020. Moody's lowered the company rating from Baa1 to Baa2 with a negative outlook. I would also clearly say that we continue to target a capital structure and financial ratios that support a solid investment grade rating also in the future. You can see in the graph that presently our balance sheet includes liquidity of around EUR 2 billion in cash equivalents, and current financial assets. This source of liquidity is complemented by an undrawn revolving credit facility of EUR 2.5 billion, which we concluded in Q1. Against the backdrop of high uncertainties, we currently prefer this very strong liquidity position, as it was secured at very attractive rates during the course of this first half-year.
After raising and partly retiring short-term working capital lines, as well as receiving a loan from the European Investment Bank, we issued 2 Eurobonds with a total amount of EUR 1 billion in June, and the investor demand was exceptionally high, with the order book being more than 10 x oversubscribed. This transaction also allowed us to substantially extend the average maturity of our bonds. Last but not least, I would like to mention that the proposed dividend of EUR 1.20 per share is planned to be paid out after the upcoming AGM in early August, and then obviously, will impact the net financial debt development in Q3. With that, let's move to page 15, where we summarize the key drivers of our earnings development. First of all, let me reiterate that overall, we confirm our 2020 EBITDA guidance.
On the upper right-hand side, you have the bridge items. Regarding the year-on-year bridge between the actual 2019 and expected 2020 EBITDA, we assume the following key variables. First of all, we slightly adjusted the pricing development from a negative EUR 0.4 billion to a negative EUR 0.35 billion, based on the June margin going flat forward. Our assumptions for exchange rates and the so-called other lines are unchanged. Obviously, the visibility on volume development remains very low, and therefore, we continue to work with scenarios. The reported Q2 volume leverage on sales was a bit higher than anticipated due to product mix shifts within our core volumes and declining non-core volumes as well. Looking forward, a volume leverage of around EUR 50 million per 1 percentage point of core volume change, as it's indicated in the slide, remains a reasonable assumption.
This value may again vary in a given quarter depending on further product mix shifts and the development of non-core volumes. Those are the bridge items. I would now give you a little bit of help when you fill your models, how to apply the same bridge logic to the EBITDA in Q3 2020. Our base here is the reported EBITDA of EUR 425 million in Q3 last year. We would assume a mid to high double-digit EUR million burden from pricing delta based on June margins flat forward. We would also assume a slightly positive impact from the others line and foreign exchange rates, if you take them together. This leads to what I would call a reference EBITDA before any volume changes, which is somewhere in the mid EUR 300 million range.
Now to this value in your spreadsheets, you may now apply the volume leverage of EUR 10 million-EUR 15 million per 1 percentage point year-on-year change in quarterly core volumes. Obviously, this number, I leave it up to you what you plug in into your models. With that, I would like to move to page 16, which shows you the remaining items of our guidance. As explained, we assume core volumes in 2020 below 2019. Our free operating cash flow guidance remains unchanged, in line with our unchanged EBITDA guidance. Apart from a slightly more negative financial result, which we now expect at minus EUR 120 million versus originally EUR 105, all other guidance items remain unchanged. With that, I would like to hand it back to Markus for the summary.
Thank you very much, Thomas. Let me summarize on page number 17 the highlights of this quarter's result. The global coronavirus pandemic drove down our core volumes. We recorded the strongest impact in April and a sequential improvement since mid-May. Second quarter earnings were above market expectations at the time of pre-release due to better-than-expected cost management. We responded quickly and decisively to the crisis and managed it for Covestro in the best possible way by implementing a broad-based set of measures.
This included executing short-term cost savings, entering a solidarity pact with all Covestro employees, and securing a strong liquidity position. We confirm our full-year guidance despite a highly uncertain economic environment. We proposed a dividend of EUR 1.20 per share to the annual general meeting, which is scheduled to take place next week on July the 30th, 2020, for the first time as a virtual event. We thank you for listening and are now happy to take your questions.
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press nine followed by the star on your telephone. If you wish to cancel your question, please press nine followed by the star again. Your questions will be answered in the order that they are received. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Please stand by until we have received the first question. The first question is coming from Christian Faitz from Kepler Cheuvreux.
Yes, thank you. Hope you can hear me well. Good afternoon, gentlemen. Just two questions, if I may, please. First of all, can you please share with us the current Q3 trends in the polyols market, as this was the major drag for the polyol business in Q2? According to chart five, the volume recovery in the U.S. in the last couple of weeks in Q2 seems to have been quite remarkable with or without that one customer order you referred to. Can you share with us the trend, if that trend has continued into Q3, or have renewed lockdowns in the U.S. and the entire political situation there put an end to the volume revival in the meantime? Thank you.
Okay. First, can I take the last question? First of all, I think we obviously provided a lot of details during the months and week of the COVID crisis, just to give you a little bit of transparency. I think it would now be a little too early to say, okay, let's talk about July on a region-by-region basis with the month not even having ended. I think our overall message is that the good momentum that we've seen in June has continued into July. We think that sequentially we will look at an improvement, maybe year-over-year, still a slight decline. I think the general trend is also true for all regions, so it's not that things have, in a certain region, completely collapsed after that. I think let's maybe leave it at this degree of precision, because the month is not even over.
Sure. Fully understood. Thanks. Thanks, Thomas.
Next question comes from Daniel Chung of Redburn.
Hi, there. Two questions from me. First is on the polycarbonate division. It's pretty impressive how margins have remained robust here. Could you elaborate on what are the main drivers here? Was it primarily volume share gains as high-cost producers reduce their output, or are there other factors to consider here? Secondly is on the price raw mat delta. Given the raw material deflation lag impact and potentially sustained demand coming through in Q3, is there any further upside to your assumption of the minus EUR 350 million for the full year?
Yeah. Daniel, thanks for your question. The first one on polycarbonates. It is a mixture of different effects. First and foremost, I think, we have over the last 10 years, very consequently shifted our product mix in the polycarbonates area, not only with regard to the product, but also with a broader industry experience. Just to bring everybody up to speed, if you look 15 years back, there was one product that was representing more than 1/3 of the global markets for polycarbonates. That was compact discs. Since then, as we were seeing that this one-trick pony would not last very long, we were constantly shifting and moving the entire polycarbonates portfolio to a highly, let's say, degree, towards smaller niche applications. That strategy is now in this crisis, I think, paying off.
The second topic is, we have continuously worked on our cost position also for what I would call the base grades, which are partially highly commoditized. That means leading cost positions have been built further. In that context, we were able not only to compensate partially for the massive decline in the automotive industry, by, for example, shifting volumes into the electrical, electronics, and also medical segment. Also we're able to shift significant quantities that we could not sell in a specialty area towards the commodity area due to our leading cost position. Overall, we maintained, I think, above industry utilization rates for the majority of our plants, and at the same time, we're able to compensate shifting high margin grades from the automotive industry into other high margin grades from the electronic sector, but also towards the medical sector.
All these effects that I have just pointed out, leads to the, from my perspective, quite a nice margin profile that we currently see for the entire businesses. For the next question, I would like to hand over to Thomas.
Yeah, I think, Daniel, to your question. I think currently, obviously there's quite a bit of movement in the raw material prices. I would say our best estimate is that we're confident that we can keep, if you talk sequentially, that we can keep the margins flat. That would exactly indicate, if you look at it year-on-year for Q3, a kind of mid to high double-digit burden still, as I've indicated in my little bridge item speech. Quite frankly, I think for the time being, this is our best estimate. Obviously, H2 is highly uncertain. There's always opportunities and risks, but if you want our best estimate, we would say sequentially, we would keep the margins flat and that would then imply year-on-year that there would be this further deterioration, which we have baked in into the EUR 350 million, which we have given you.
Great. Very helpful, guys.
The next question comes from Thomas Swoboda from Société Générale .
Yes. Good afternoon. Good afternoon, everybody. I have two questions, please. Firstly, kind of a follow-up on polycarbonates. Congrats on the performance in Q2. That looks very good. My worry is a little bit around this capacity overhang we're still seeing, especially in China. My question is: Do you think Q2 could have been already the trough for this business despite the capacities still coming to the market? Is there a relevant fear, or should we have a relevant fear that profitability could still deteriorate from the currently very good level? The second question is on polyols and on the EBITDA bridge you have given for Q3. This is very helpful. I was just missing the effect from polyols. Do you expect the headwind from polyols to start to wane already in Q3? Should we expect this to be a little bit longer lasting?
Any indication you could give on the phasing of the negative effect from polyols would be helpful. Thank you.
Yeah, Thomas, thanks for the question. Good hearing you again. This is Markus speaking. Let me give you some flavor on how we look at polycarbonates. We have a capacity overhang. That was already there in the second quarter. I have to say that was despite the fact, or really under the impression of additional capacity that was coming up, and capacity does not equal capacity. What do I try to indicate? We see still a steep cost curve for the base grade of polycarbonates, that means the highly commoditized grades. From our assessment, almost all capacity was coming in, and you might wonder, but even though it is new capacity, it comes due to several reasons more in on the higher cost side and cost producer side, rather than on the lower cost producer side, where we have positioned ourselves very successfully since many years.
That's why I believe that on the commoditized polycarbonate grade side, we have already seen trough levels and approached trough levels in the second quarter. At the same time, coming back to what I said earlier, we have constantly rebuilt the entire product mix over the last decade for polycarbonates, and that gives us now two actually opportunities to play. On the one hand, to continue to play and shift on the highly specialized grade side, and on the other hand, to fully leverage our cost advantage by fully loading wherever possible our low-cost base grade polycarbonate plants. From that perspective, I would not expect, despite the fact that there might come additional capacity on stream, that we would see lower trough levels in that sense.
The only large impact that could happen is if we would see a significant drop in volumes in the overall demand in the market, that would then in the end also affect us. I think we have also answered that a little bit earlier in a different context. Currently, we see since mid of May a continued trend across the globe in all regions of sequentially increasing demand, here, especially in polycarbonates. I hope that helps you a little bit to see the dynamics here. For the polyols question, I would like to hand over to Thomas.
Yes, Thomas. I think on the polyols, our assumption would be that the burden will be eased in Q3 simply because there will be, we were expecting a pickup in volumes relative to the trough that we've seen in Q2. That obviously will lead to at least the take-or-pay clause will not be affected or effective. That will give us a saving here. I think it could also improve the margins a little bit so that overall, and that's baked in into the assumptions that we've given you, we would expect a nice rebound in PUR in Q3 relative to Q2.
This is super helpful indeed. Thank you.
The next question is coming from Jean-Baptiste Rolland from Bank of America.
Good afternoon, gentlemen, and thank you for taking my questions. I would have three, please. The first one is, you have mentioned a headcount reduction on top of the 400 that you have already achieved as of end of June. Could you quantify how many additional headcount reduction you're intending to achieve this year, please? Second question, on the topic of polycarbonate, how much new polycarbonate capacity do you see the industry bringing online in the coming quarters? Last one, have you seen any particular shutdowns in MDI, TDI, or polycarbonate, whether they are accidental or strategic decisions? Thank you.
Jean-Baptiste, this is Markus speaking. Thank you very much for the question. On the FTE numbers, we would intend until year-end that we are working on a further reduction of the global headcount by another, let's say, low triple-digit FTE number. That's currently best guidance on that one that we could give. If you look at the so-called additional capacities that we would expect in 2020, that is for the full year, a number of 11%. Please keep in mind two things. Number one is that the announced capacity and the capacity that really comes on stream differs in some years significantly. In particular, in years like that, there is always delays that is partially driven by different outlooks of competitors towards the market. It is not that they're swiftly building and ending the projects. That happens sometime.
We have historical evidence for that. The second topic is, the pandemic actually also has a strong impact on the construction simply of a side due to availability of workers, and that is a major undertaking, so that it could also slow down significantly the buildup of new capacity. The third topic is, if you look at the current, let's say, shutdowns, there is publicly available information that would indicate that we have between 200,000 and 300,000 tons of capacity that is temporarily in a shutdown and has been not taken out of the market, but is not producing. What does that mean? That means between 4% and 5% of nameplate capacity in the market is currently not on stream.
With regard to the last topic on TDI, MDI capacity, if I'm not totally mistaken, I understand that we have in TDI, roughly 200,000 to 300,000 tons of nameplate capacity currently not producing. That represents at current market size, roughly 10% of nameplate capacity being temporarily taken out. On MDI, I just currently do not have any indication due from public sources that really MDI capacity has been taken out, even on the temporarily note. That's all we have for the time being.
Thank you so much.
The next question is coming from Markus Mayer from Baader Bank.
Good afternoon, gentlemen. Two questions from my side as well for me. The first one is again, coming to the demand. Do you expect this year pronounced summer lull as suddenly again, automotive customers might shut down their production? Do you more expect a restocking of your customers into the summer? That would be my first question. My second question is, have you seen any change behavior of your competitors due to pandemic crisis? In other words, as there are no volumes, I guess that your competitors have not undercut prices. Do you expect more price war when demand comes back to full capacity?
Markus, this is Markus speaking. On your first question, the automotive picture for us is that for the entire year, we still expect that the automotive segment will be affected most likely to the largest extent in our entire portfolio. We see very different pictures developing recently with respect to end consumer demand and also with regard to stock levels. Whereas in China, we see currently that what end consumers are buying, and here demand is really picking up quite swiftly and quickly, is really also then translated into real production and not served out of stocks. We have a different picture for Europe and also quite comparable in the United States, where still a lot of cars are sitting, so to say, on the inventory that have been brought to the car dealers, that have been produced, and they're sitting still in the inventories.
That means whenever consumers are buying there, that does not directly translate into the real demand that would normally, under normal, let's say, inventory levels being created. What does that mean? Even though we see slight recovery in the automotive industry demand for our products, and here for sure, particularly in the polycarbonate segment, first thing is that demand is maybe not directly related to what the current, let's say, buying rate of end consumers is. Secondly, we must also not underestimate that due to the specific situation, in particular in Europe and also the U.S. That demand will be highly volatile on our side and continue to be highly volatile in the next couple of weeks and also months to come.
On your second question, given, let's say, the low margins in the market that we have seen, high-cost producers normally do not react by, let's say, continue to be very aggressive on prices. What they do is they start to shut down temporarily capacities. I have alluded to that a little bit earlier, what currently we see from publicly available sources on polycarbonate as well as on TDI. From that perspective, for me, there is a limited risk for further deterioration.
Okay. Thank you. Very helpful.
Yeah. Thank you.
The next question comes from Nicola Tang from Exane.
Hi, everyone. Thanks for taking my questions. The first one is actually on CAS. I was a bit surprised to see that the volumes in CAS in the quarter were down as much as in polyurethanes, because I know you've got some exposure to specialty applications and some of the coatings companies have been talking about decent demand on the decorative paint side. Perhaps it's because you've got more industrial than deco exposure, but could you talk a little bit about the end market dynamics in CAS between coatings and adhesives, and how you expect demand to develop going forward there? The second question was a sort of longer-term question.
One of your peers in polyurethanes, Dow, reported this morning as well. I saw the CEO was saying that they don't expect to return to pre-COVID levels in terms of volumes and margins for the next few years. I was wondering whether you kind of share that outlook.
Nicola, thank you very much for the question. On the first one, we do not actually deliver in decorative coatings. That might help you also to, let's say, see where we are present in the respective end consumer markets and where not. On performance coatings at AkzoNobel, that was roughly down by 23%. Also AkzoNobel actually in addition, reported an inventory adjustment, which actually was a burden for us. Despite all these facts that I just brought forward, we have had, let's say, volume reductions to a similar extent in this order of magnitude. That, I think, shows a little bit how much our exposure is, slash how much we are actually trying to also shift from one end consumer or one, let's say, application market into the other.
However, in the CAS area, as this is so specific and so specialized, it is rather difficult to short-term, let's say, mimic the same trick like we have done it in the polycarbonate area, where we have still a huge commodity area where we could also shift some of the grades and really compensate, at least partially, some of the volume losses that we had in a highly specialized area. If July might still be down year-on-year slightly, if the today's trend would continue in August, it might be up year-on-year. However, there is still high uncertainty prevailing, and that's so to say the best guess and best information that I can give. On the numbers of the other company that you have just said, we do at the current point in time not provide any guidance for the years 2021, 2022.
Nonetheless, in very general terms, if you look at the overall economic data, if you look at the overall industry exposure that we have and look to the numbers that those industries are actually currently providing. For example, the furniture industries, let's say mattresses, upholstery for example, the car industry, and here just to mention some automotive seating, automotive non-seating businesses. If you also look into the construction industry, which is currently not that much affected, but I think there will some effects coming, I would not totally disagree with what maybe Jim Fitterling has said during his call.
Okay. Thank you.
The next question is coming from Geoff Haire from UBS.
Good afternoon, and thank you very much. Most of my questions have been asked. I've just got one small question left. The EUR 91 million of temporary cost savings, I think you described it. I just wondered if you could highlight how much of that's related to the volume reduction. When volumes start to recover, how much of that will be lost?
Yeah. Geoff , first of all, when we talk about the measures that we're taking, let's come back to this EUR 130 million in Perspective, we said EUR 300 million of short-term cost savings. Those, generally speaking, are not volume related. Those are just things that are driven by the solidarity pact. Those are driven by less maintenance costs that we're incurring, less consultants, less marketing, travel, entertainment, all the things where you can just take a break on spending for a while. It's nothing that has any direct link to the volume development. Nevertheless, I will of course agree with you that
They will come back eventually in 2021. If you want to attach a rough number to that, my best guess would be 50% at least will come back next year, because you cannot stop traveling forever. That's how I would look at it, but it's nothing where you should expect short-term in Q3, that driven by a recovery in volumes, those savings should go away.
Okay, thank you.
The next question is from Mr. Mubasher Chaudhry from Citibank.
Hi, thank you for taking my questions. Just two quick ones, please. There has been some reports of recovery.
I think we just lost you, so maybe the operator, could you try to handle that?
Yes. We've just lost the man asking the question. He's fallen out of the line.
We take the next question.
Okay. The next question is from Mr. Chetan Udeshi from JP Morgan.
Yeah. Hi, just a couple of questions. Maybe I missed it, can you inform us of what is the utilization of your assets right now in different businesses? Second question is, what is the status of the 200,000 tons MDI expansion that you had planned in Germany this year? With the new CapEx framework, can you remind us of what are the key new capacities that you will have online next year, for 2021, in different businesses? Thank you.
Okay, Chetan, this is Markus speaking. Thanks a lot for the question. If you would refer to slide number six of our presentation. There on the bottom left, you would see some indications about where we are in terms of capacity utilization for our plants. In Europe, for PUR, we are back to high rates. PCS and CAS are still at reduced rates. North America, MDI is back to high rates. All other products are running currently at reduced rates. For Asia Pacific, the PUR as well as PCS is back to high rates, and generally the utilization rates adjusted in line with the respective demand. If you ask about the status of the MDI plant in another part of Germany, in Brunsbüttel to be very precise, runs at full, let's say, nameplate capacity as intended.
The last question is about how much additional capacity would we see for the next year. Here I hand over to Thomas.
Yeah, Chetan, maybe let's put it this way. The 200 KT MDI in Brunsbüttel, they are up and running. Of course, with the market development, as Markus said, we're not fully utilizing our assets on a full year basis. Therefore, what I would say is, there is nothing major as the 200 KT coming on stream next year. It's smaller things like a compounding addition, which we have in North Rhine-Westphalia, and small other things in the space of CAS, but nothing major in terms of MDI or TDI. Which is not a problem because, I think as we just discussed, it will take maybe a year or two before the market comes back to the pre-corona levels.
With the expansion Brunsbüttel that we have put in place, I think we're absolutely well placed to, even without big additions next year, fully capture the market growth, and maybe even more than that. To your question very precisely, nothing major coming on stream, but not a problem. We have enough capacity to grow at least in line with the market.
Understood. Thank you.
Mr. Köhler, there are no further questions at this time. Please continue with any other points you wish to raise.
Thank you very much for your questions. With that, actually, we are absolutely on time with our call to close it here. Thank you for your participation. If you have further questions, don't hesitate to call the IR department and then potentially we will see you or speak to you soon. Seeing it's obviously a bit more difficult these times, but we nevertheless plan to participate on some virtual events, but actually rather geared towards September. I guess, from our perspective, we can wish you a nice holiday, even if you have to stay a little bit in the office. With August, obviously it's holiday times, and after that we will be back of seeing you then there. Thank you and goodbye.
Ladies and gentlemen, this concludes the earnings call of Covestro. Thank you for participating. You may now disconnect.