Earnings Call: Q2 2020

Jul 29, 2020

Greetings, and welcome to the Celanese Corporation Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Question and answer session will follow the formal presentation As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, A. Paul, Vice President of Investor Relations. Thank you. You may begin. Thank you, Jesse. Welcome to the Celanese Corporation Second Quarter 2020 Earnings Conference Call. My name is Abe Paul, Vice President of Investor Relations. With me today on the call are Lori Ryakkerk, Chairman of Board and Chief Executive Officer Scott Richardson, Chief Financial Officer. SALT Needs Corporation distributed its 2nd quarter earnings release via Business Wire and posted prepared remarks about the quarter on our Investor Relations website. Yesterday after market close. As a reminder, we will discuss non GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward looking statements. Please review cautionary language regarding forward looking statements, which can be found at the end of the press release as well as prepared comments. Form 8 K reports containing all of these materials have been also submitted to the SEC. Because we have published our comments yesterday, we will now open Thank you. Session. Please hold, we'll be poll for questions. Thank you. Our first question comes from the line of John Roberts with UBS. Please proceed with your question. Thank you. Nice quarter. You noted that Asia auto builds have recovered. Was your Asian engineering material sales up year over year as well. And do you think they'll accelerate in Asia after the polyplastic steel? Yes, thanks, John. We are seeing we have seen the recovery in Asia. I mean, Asia was up about 2% But I think year over year, we really expect Asia to be pretty flat to 2019. Okay. And then, you pivoted acetyls to emulsions and powder over VAM. Can you characterize the range of swing possible between VAM mulch and some powders in your mix? Yes. Maybe just to give you an idea, I mean, so we actually moved about just over 15% more into a mall as an example in the quarter. We moved kind of 1% more into BAAM. We moved more at City Gas it and other derivatives back into China, since that was a little bit more robust market, even though the margins were a bit lower. Mean, generally, we characterize it as we have the ability to move anywhere from 40% to 60% of our acetic acid into downstream derivatives. Okay. So a 20% range then. Great. Thank you. Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question. Hi, thank you and good morning. I just want to square a couple of the outlook comments. Starting in the A stills chain, you mentioned flat 3Q versus 2Q. And you also mentioned that, you don't expect prices to improve until demand gets back to pre COVID levels. And then later in the comments, you talk about 2019, 2021, being as an opportunity for demand level be greater than 2019. So I wanted to make sure that comment was also meant to apply to AcetiIC, to the Excel And if you think that sort of will be the trajectory? Yes. So an asset tilt chain, I mean, we do expect some volume recovery, modest volume recovery in Q3, we aren't expecting though a big change in pricing. As we said, there's still a lot of available capacity be in the world. So we think that puts a limit on the pricing. Look, we are seeing some improvement in methanol pricing in early Q3. We are seeing some improvement in acetic acid pricing, so maybe even slightly up margins at the beginning of Q3. But we don't really see the fundamentals yet to really think maybe that's sustainable for the whole quarter. You might remember in 2nd quarter, we also saw a bit of an uptick in margins early in the quarter, but that really flattened out. As the quarter went on. So right now, we're saying, modest volume recovery, pretty flat margin, And that, but that volume, but we do have some smaller turnarounds in Q3 and Conrahero Frankfurt and Singapore, which kind of offsets that modest volume recovery. So that's why right now, we're calling it essentially flat. Again, we're seeing a little bit of margin expansion early in the quarter, but right now, we don't know that that's going to sustain. But clearly, if it does, that will be a help. Yes. And I think if you looked at sorry, Vince, if you looked at your question 2021, it's still early on the STL chain. We don't have that long of visibility. But we do we are anticipating given conversations with customers that demand will be improved, versus 2020. At least that's the current outlook what to see if it gets up to 2019 levels or not. We did see a fair amount of destocking in 2019. In the business. But that 2021 comment was probably a little more related to Engineered Materials. Okay. And I did want to follow-up on the destock and the seasonality comments that you made for 4Q, I mean, obviously, recognizing 4Q in a normal year is a destocking quarter. There's obviously another normal year. And when you look at sort of the volume of 2Q, and I recognize it's very hard to predict, 4Q at this point, let alone August. But, are you just sort of being conservative assuming that customers will destock in 4Q because that's what they always do? Or is it possible this year just because it's been such a a strange year with such a soft 2Q that we don't actually have a down 4Q sequentially versus 3Q because customers demand is still coming back and don't have the inventory levels to really do it. How are you thinking about that? Yes, I would say, Vincent, we're really assuming normal seasonality. I wouldn't say it's as much destocking as just slightly lower demand as demand come off in 4th quarter for construction and some materials and other things. So, not really destocking as much as just normal reduction in demand. Now, look, we're keeping our options open. We're maybe with the abnormal second quarter we have, we'll see people continue to run stronger in 4th Q. We've seen that in some years, but we're not assuming that at this time because again, we just don't have the visibility that far out. So we're just assuming a kind of a normal level of demand drop off associated with the fourth quarter. Yes, Vincent, that Q4 demand in acetyls tends to be weather related, in construction paints and coatings in our emulsions business. So we think that will probably come to fruition where we may not see as much of an impact as on the engineered material side. We'll just have to wait and see. Even though we're bringing turnarounds forward into this year, we have enough flexibility in our volumes that if we don't see that stocking or that seasonality in EM, then we should be able to respond. Thank you. Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question. Thank you very much. Laurie, I was wondering, you guys said back at the last big investor day, you talked about some aggressive, but maybe not specific timeframe for some acetic and van expansions. Can you just give us an update in light of what's going on this year? How that's changed your view if at all? Yes. Thanks, Bob. So the acetic acid expands was really around the reconfiguration to the expansion at Clear Lake coupled with some productivity moves in Asia. So as we as we said last quarter, we have delayed that project for about 18 months really in response to the reduced demand dynamics we've seen for acetic acid as well as the low oil price environment, which make Singapore look somewhat more attractive and closer to Gulf Coast natural gas pricing. So that's the big movement of seedy gas. And We've also announced some expansions of VAM and VAE facilities. Those continue on schedule, consistent with what we've said before. So we're really talking in the 2022 plus timeframe, because we really see the demand for those products. And as it applies now with Elotex and with others, we see a very robust future for BAAM and VAE and other downstream derivatives of acetic acid. So those continue on schedule. Acetic acid is delayed about 18 months. And in EM, I'm just curious, given the pretty extreme volatility in a lot of polymer pricing. Has that provided some opportunity? Is there some threat there? From inter material substitution. Can you just sort of talk about your development efforts with customers there in light of all this volatility? What's that done to the whole process that you guys have in terms of the innovation and new product wins and that sort of thing? There's been a number of opportunities that have come up in Engineered Materials. So, one opportunity was we've seen probably more so than price volatility, I would say is around, desire to have more certainty on supply chain. And so we have seen inquiries from customers and wanting to get product within the region that they're going to use it to derisk some of their supply chain. So that's been a few opportunities for us. And we also just see a lot of opportunity consistent with what we've laid out as our strategy. So really more aggressive movement into electric vehicles. We've seen a lot more opportunities there, especially for some of our recycled products like Ecomid and some of our flame retardant nylon. We're seeing more opportunities there for light weighting. We just see electric vehicles, which obviously is also getting a lot of help here, in the COVID environment from stimulus packages and things, especially in Europe and Asia, that has been a focus for us for the last 18 months now and we see it really developing to where, for example, the accessible market for us in electric vehicles is about 30% greater, for selling these products than it is in traditional vehicles. So, we've seen 5G is another area more focus on medical pharma. That has provided some opportunity. So I think some of the strategic focuses that we've laid out in the last year, we've really seen strengthened, through COVID, as well as some new ones developing around things like people wanting more materials that are resistant to the use of disinfectants and sterilization. As well as more focus on pharma compliance. So we actually see a lot of opportunities in, in Engineered Materials and our pretty optimistic about the level of projects wins we've had that might be in a COVID environment. Great. Thank you. Thank you. Our next question comes from Duffy Fischer with Barclays. Yes, good morning. Maybe just a follow-up on EM, when you look across your suite of all the different polymers, with the weaker demand, have you seen any erosion or material erosion in pricing caused by that weaker demand? You know, I would say, across the board on average, no. In fact, we probably saw a little bit of margin expansion in the second quarter with lower raw material. And we should see that raw material advantage continue because there's always a bit of a lag in raw material advantage. And so, you know, while in some end applications like consumer and industrial, there's certainly been an automotive. There's been a softer demand and some of that has maybe tightened up pricing in others like electrical and medical we've seen higher demand and we've seen improved pricing. So, on average, I'd say our margin, variable margin has been pretty consistent, quarter to quarter and if anything, we're seeing just a little bit of margin expansion overall. Okay. And then, if we just move to tow, the pandemic influence on cigarette in your tow business. I mean, I don't know, but it's a respiratory disease. I can't imagine smoking cigarettes is enjoyable trying to wear a mask. Have you seen any influence on demand for either cigarettes or your tow business because of, COVID? No, not at all. We have not seen any impact, on demand or any impact actually on smoking ends. In fact, if you look at China, China through June is showing a 2% increase in demand, for cigarettes and anecdotally even in the U. S. If you see some of the reports coming out, like Altria is reporting only a 2% decline this year versus what they thought. It would be a 4% decline in smoking. So I would say in some areas of the world that would appear, people have more time in their hands and are using that time to smoke more, not less as as kind of strange as that seems in this period. So we're not seeing any impact in demand, if anything, a little bit of an uptick. Great. Thanks guys. Thank you. Thank you. Our next question comes from P. J. Juvekar with Citi. Please proceed with your question. Hey, Laurie. It's Eric Petrie on for P. J. Hi, Eric. In Engineered Materials, can you discuss your project pipe line, you were talking about moving from 4000 last year to 5000 this year. So is that on frackers that flowed down with lower auto builds? No, I mean, actually, you know, our Q2 is on track, for in terms of project wins with what we expected, you know, despite the COVID challenges. And I would say, even if you look at kind of value per win, which is where we're trying to focus this year, which is more on value, that's actually been flat year on year. Which we think in the COVID environment is also good that we're getting good value out of our product. You know, I would say our, you know, our engineered material folks are just doing a fantastic job being creative, finding ways to actually increase the amount of contact we have with our customers, even if it's remotely, being able to use a remote environment to get higher level contact with our customers. And using some really creative mechanisms like webinars to really not just touch existing customers, but also do prospecting for new customers. And so, we have found customers still want solutions we're still in the business of providing solutions. Our folks are really focused on that. And in addition to the ones we called out, we've had several great examples of projects wins in this quarter. I mean, just to maybe just put a little color around it, in medical grade palm, we had a pretty big win there for an auto injector application in Europe. We signed a development agreement with an for an application of our Vital dose EVA, which came up pretty good upfront development fee. We have a new high voltage connector application for electric vehicles for our flame retardant nylon, which we also signed this quarter And then we actually have, quite a lot happening in the 5G space as folks are looking for better signal integrity, which is a great application for primarily LCP, but also PPS. And then for weight weighing applications, which is maybe more around LFT and other polymers. So, we're really excited about the wins that we're seeing, in non automotive space, but of course, we call that. We also had a big win that this quarter in the automotive, Tier 1 space as well. Great. Thank you for that insight. And then turning to the asset yields chain, We expect some volume improvement into 3rd quarter, but no pricing. So that just due to raw materials, you're expecting to remain benign for methanol and ethylene or could you talk a little bit about those raw material push on pricing versus a demand pull? Yes. So 2nd quarter raw materials was, I would say, kind of at an all time low. It was lower sequentially from Q1. Across all areas. I mean, methanol was very low in all regions. I mean, we're seeing 20% declines in the U. S. And Asian in terms pricing. Ethylene was very low with 15% declines in the U. S. 25% in Europe. Natural gas was low. I mean, everything was really low. Q2. As I said to an earlier question, we are seeing maybe some slight movement upward in terms of raw material and also acetic acid pricing. Q3, but we saw that also in early Q2 and it didn't sustain. So, our assumption now for Q3 is, we may see some movements with pricing We may see some movement with raws. They tend to move together. So we aren't really expecting much margin compression, but we're not expecting margin expansion. Either. So that's our assumption going forward. If we see sustainable movement, there may be an opportunity for margin expansion, but we've not baked that into our numbers. Okay. Thank you. Thanks, Eric. Thank you. Our next question comes from the line of Mike Bison with Wells Fargo. Please proceed with your question. Hey, good morning. Nice quarter. Laurie, what do you think the access tool chain can get back to, you know, once, you know, maybe a post COVID volume number or, you know, been active maybe a pre COVID volume if you can get back there at some point in time? And then what do you think needs to happen in terms of margins and pricing and to sort of get to that run rate? Yes. Thanks, Mike. Look, we still feel like kind of foundational level of earnings for the acetyl chain. Isn't that $175,000,000 to $200,000,000 a quarter. So kind of that $700,000,000 to $800,000,000 per year. We feel pretty comfortable with that. I mean, even if you look at where we are right now in this quarter at, say, 116, We had an 11% volume loss due to COVID if you remove the Elotec acquisition, which was 5%. So that's about $40,000,000 right there. And then we had another kind of $20,000,000 in price margin, which I'd say was tied to those really low volumes and utilization, particularly looking at advanced. So if you look at that, we're still in that we still feel like we're in that $175,000,000 to $200,000,000 range kind of without the, you know, extreme impacts that we've got from COVID on volume and then resulting that resulting impact on margin. So I really think it takes back to getting to more normal levels of utilization. If you look at utilization, this this quarter, I mean, we this is really the lowest of the trough conditions. If you look at China, China utilization was below percent. Global utilization was only mid-sixty percent. So I think really to get back to that level of foundational earnings, we need to get back to the kind of 70% and higher, level of utilization. And it's really about recovering Western Hemisphere demand because that's really where we saw the weakness in second quarter. Got it. And then when you think about 'twenty one, you've accelerated some turnarounds. You have some cost savings. How much sort of growth do you have someone in your control as you head into 'twenty one as sort of an anchor for some, some profitability improvement? Yes. So as we move into 2021, we're really looking if demand continues at the current trajectory, we're really then 21 nearing the levels we saw in 2019. As you noticed earlier with my optimism about our project model in EM. I mean, we are having a lot of new project wins, new opportunities that we've developed that we think in the EM space will let us, again, assuming the demand recovery continues, let us exceed the levels that we had in 2019 based upon the new projects that we're seeing being developed. So again, really around the EV space, Also elective surgery, you know, we had a bit of a, you know, almost I'd say a $10,000,000 surprise this quarter, from elective surgery deferral. I mean, we knew they were being pushed out, but we expected them to come back yet at the end of second quarter. We really haven't seen them come back. That was about a 10 dollars hit in the 2nd quarter. Even in the 3rd quarter, while we think elective surgeries come back, we aren't expecting much of that to come back in the 3rd quarter. Because there's some inventory that needs to be taken down at the, those suppliers. And so, you know, that recovery really comes in 4th quarter and we think in 21. So we think that will be an upside going into 2021 as well. You know, asset sale inventories are generally pretty low. So we think as we see demand recovery, that will pull through to volume and margin in acetyl. And then as you said, we kind of have a $70,000,000 to $80,000,000 help next year from less turnaround. Great. Thank you. Thank you. Our next question comes from the line of Matthew Deyour with Bank of America. Please proceed with your question. Hi, thanks. So, the last few EM deals targeted nylon compounding, but I'm assuming that opportunities have been tapped out now. So where do you see future cash deployment headed from a polymer technology standpoint? Yes. So we have targeted nylon. I mean, we put a lot of money into nylon acquisitions a few years ago. And so we've really been working to kind of exploit that part of our portfolio and that new capability that was the rationale behind those acquisitions. And I think quite frankly, there's a lot of runway left for us in nylon. And especially in some of what we think are unique and good offerings we have around recycled nylon. So again, our Eco Mid series, as well as our playing retardant nylon. So we actually think there's a lot of growth left in nylon. With our existing assets, if you will. So as we go forward, we'll continue to sell that as long as as well as our commerce as you think about M And A going forward or capability going forward, I mean, clearly there are some other polymers that may be of interest to us. We continue to look for ways to further expand our capability within some of the polymers that we have as well as expand our reach maybe to palmers that are focused on other end use sources or other geographies that we haven't penetrated us completely. Okay. And then you had talked about the European compounding for consolidation. You put out a press release. I mean, I missed it, but did you highlight any savings or synergies from that rationalization or optimization. Should we expect anything there? Or is this kind of a Yes, absolutely. I mean, it's a bit tied to question. I mean, when we did some series of acquisitions over the last few years, we assumed a certain level of synergies associating with be able to optimize footprint, further improve our compounding capability and skills as well as the polymers that we acquired. And so, it usually does take us a few years to really get our handle on the business and what's happening and see where those opportunities are. So, This announcement of the consolidation of facilities in Europe and establishing a clear compounding center of excellence is poorly I'd say it's just really the natural progression from those acquisitions that we made a number of years ago. And so there's clearly productivity that comes as well as we think improvement in development capability, customer support, supply chain optimization, etcetera. I would think of it in terms of, you know, we typically only do projects that have greater than 20% returns. This one falls into category and it will Thank you. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed with your question. Thanks very much. What's been the growth rate in medical applications in your engineered materials business so far this year? So, Jeff, I think the the medical applications has been relatively, flat year over year with some growth in some applications, but clearly offset by, the decline we've seen this year in elective surgeries and what that has been. Again, I don't think that's a long term trend. I think as we have in previous years, we will continue to see mid digit growth year on year in medical. But I think this is just a timing impact in terms of electric elective surgery. But because of that change in elective surgery this year, I would say relatively flat year to year. You have a relatively mild volume forecast in Seadrill Chain for the 3rd quarter relative to the 2nd quarter. Is that because of Celanese's own, either restructuring activities or plant turnarounds Or does it have to do with the rate of the growth of the acetyl industry itself? Maybe you could talk about the growth of the industry in the second quarter versus the growth of the industry in the third quarter? Yes. So, I mean, we did see some good recovery in volumes quarter 1 to quarter 2, as we saw Asia really coming back earlier, but we saw a lot of decline obviously in the Western Hemisphere in quarter 2. Now as we move into quarter 3, we do expect, as I said, modest volume growth in the Western Hemisphere. But we are being probably a bit conservative here in terms of what we think volume growth will be in the 3rd quarter just based on what we're seeing as the trend so far. Yes, Jeff, if you look at Q2, on a year over year basis, we were down somewhere in the 20% range. If you look at Q3 year over year, that's probably more like 10% to 15%. So that modest increase driven by some slight recovery in the Western Hemisphere. Great. Thank you so much. Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Good morning. If I look at your acetate tow earnings in the first half of the year, your equity earnings from the JVs in China are up double digits in percentage terms while the consolidated sales are down, looks like 22% or so. And so my question is that it seems a lot more pronounced than the underlying demographics. Has that mix shift been more acute for Celanese for some reason. So why is that the case? And do you expect it to continue? Yes. So Kevin, I mean, I think it's there was a one time event. We had a large contract which came off at the end of 2019, which actually shifted volume to our affiliate and took it out of our own earnings. And so that you're seeing that shift. That was something that was planned. We've called it out in past quarters. So it really is that shift into affiliate, you know, a volume coming from our affiliate versus coming from, if you will, selling these production. Yes, Kevin, if you can go back to our Investor Day in 2018, we telegraphed this, that this would be coming. Understood. Thank you for that. And then second question relates to your acetyls business in Asia. The prepared remarks last night, you referenced the extension of some supply deals in Nanjing as well as Singapore. And so maybe a 2 parter, was there any benefit associated with that in the second quarter? And then longer term, does that have any bearing on your flexibility to rationalize assets in Asia, if and when you eventually proceed with the expansions that you had planned in the United states? Yes. And so, look, I mean, these are contracts that have come up in a normal way for renewal. I mean, we've been happy renegotiating them in this environment that we've been able to get some additional productivity working with our supply partners. And so we're happy about the security of supply. This gives us in both Nanjing and Singapore going forward. As well as some additional flexibility we get in these locations going forward that to really help us better manage our acetyl chain. So there will be some productivity, out of both of those contracts going forward. Most of that though will occur in future years in 2021 and beyond. It does not limit our flexibility, Kevin, to continue with our reconfiguration project in Clear Lake, when we start that back up again. Very good. I appreciate the color. Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question. Good morning, Laurie. Good morning. You know, quick question around the asset chain and the interplay between product pricing and raw material pricing. I mean, if I remember correctly, historically, you guys talked about raw material volatility actually being a favorable, you know, being favorable for that business line. Right? And if we take a look, like you rightly said, through the course of the first half of the year, ethylene pricing under tremendous pressure, methanol pricing came under tremendous downside pressure, and everything was kind of going down in a straight line. And now we've seen some buoyancy ethylene, some buoyancy in methanol, but there are enough sort of industry folks out there that expect that buoyancy to be short lived. So the question really is, are you expecting raw material buoyancy going forward? And would that or would that not be a safe unlimited environment for the AC business? Yes, so what we have been at very low raw material pricing. I mean, and we've been very low oil and low oil tends to draw low raw And normally when we see low oil, low raws, we actually expect some margin pressure in asset yields. We're actually we're very pleased in Q2 that due to the really great work by our folks in the acetyl chain and constantly pushing the envelope around activations and movement of products into, you know, with throughout the train and throughout the geographies that we were able to maintain our variable margins and not have any compression. Usually when we see raws going up, we would expect some margin expansion. But I think the way you characterized is correct. We there is some buoyancy, but we are not convinced that that will remain. Again, we saw the same buoyancy at the beginning of Q2, but then saw raw materials go to some of the lowest that we've experienced in a decade. So, you know, although we're seeing some buoyancy at the beginning of Q3, we don't still see any fundamentals that would lead us to believe that is sustainable for the quarter. And that buoyancy, we like Hassane, as you mentioned, I mean, that up and down allows us to we will flex our assets that are based upon different raw materials and different feedstocks in different regions. And just that neekness of the model and asset yields that up and down, that volatility we tend to be able to make margins on. Very clear. And as a follow-up, again, sticking to the acetyls chain, recently, we obviously saw a large incumbent exit that business and I guess a new entrant will eventually be coming in. One of the reasons cited for the exit was that the company talked about how they had kind of under invested in that business over the years and they wanted to focus on their core business. How are you guys thinking about the evolution of the market with, I guess, that large incumbent leaving, new entrants coming in and some of the statements coming out as reasons behind that exit. Yes. Look, INEOS is an experienced player in the business. We don't see any meaningful change in terms of the industry dynamics or competitiveness of the industry, within INEOS replacing BP So we don't see any change. Look, I think there's a lot of reasons that transaction just played. I think INEOS will be a good steward of the business. And while they have an interest in expansion, I also don't believe that these anybody's going to be interested in investing in these businesses at this level of margin. Thank you. Our next question comes from Ghansham Panjabi with Baird. Please proceed with your question. Yes, so Laurie, I just wanted to follow-up on some of your recent comments. You know, just kind of stepping back over the last 3 years in particular, the acetyl chain has been very opportunistic in kind of flexing its global network and optimizing margins along the chain of molecules. I guess the question is, are opportunities going to be as plentiful in a diminished sort of global demand growth scenario where there's considerable excess capacity as you pointed out? Yes. Look, as we've said before, I mean, we really think our acetyl model is unique. It's unique in breadth of the portfolio in terms of going all the way from methanol in a way now to read its first full powders. And it's unique in the fact that we have 3 very distinct routes from raw material to end use products that move. And in different geographies. And that gives us a lot of optionality that others in the industry just can't replicate. And so We think that opportunity continues through every scenario going forward. Look, ad skills will tend to grow at the rate of GDP. We tend to maybe even outpace that a little bit given the optionality, given our focus on end use customers and some of the derivatives in the asset sales chain. So I don't see that changing going forward. We think asset sales continues to be, a high margin business, maybe considered a commodity product, but we do not operate it in a commodity way. Okay, that's helpful. And then just kind of thinking through the past few months, I mean, obviously, the pandemic has impacted each of the major regions differently. Just looking through the lens of Celanese, are the Western regions recovering in line with maybe what you experienced in China or is it still too early to tell? I think it's a little too early to tell. I mean, China has had a fast recovery within China. I would say what has not fully recovered yet in China is exports from China. And you may recall last quarter, we called out one of the things we're looking for on recovery is when do China sport get back to previous levels because that's a good indication of Western Hemisphere recovery. So starting to see some exports again, but clearly not up to full level. I think the U. S. We're seeing, we saw pretty good signs of recovery, especially in auto How sustainable that is? Well, I think we'll have to see what happens with COVID and do we just do we see the economy continue to open up? Do we see it start to contract again? I mean, that's our concern going forward. I think Europe's been a little more sluggish and actually, but seems to be coming out of COVID a bit stronger. So maybe we see that continuing. So I think it is very mixed by region both at the pace and also both about the certainty in the future. And I think we continue to watch the same thing. We're looking for signs of Western Hemisphere Recovery a lot of which can be measured by what our exports doing in China. Thank you. The next question comes from David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Good morning. Just in Engineered Materials What were volumes down in June and how are they trending year over year in July? Yes. So, I would say June volumes were up actually up from May. And July is up from June and August is trending pretty consistently with July. At this point. We don't really have any visibility at this point at this point on September. But, steady monthly good progression from May through July. Yes. David, for the quarter in Q3, 3, we're kind of looking at 10% to 15% down year over year, if that's helpful. And it's a little different. Typically, August, we would see, volumes come down versus July. We're not seeing that dip in the order book just given the differences that we're seeing this year. That's helpful. Thank you. And just Laura, you mentioned the Mancina having the big earnings decline in Q2 due to the low oil prices. They've come back a little bit. So how do you think about in the scene of the earnings in the back half of the year at a little bit higher oil price? Yes. So we look, we did see Evapina come down in 2nd quarter due to low oil prices. Again, Evapina is the quarter delay. So that's old low oil prices in Q1. Obviously, those low oil prices continued in Q2, which we will now see show up in our Q3 earnings. And then Q4, who knows, hopefully, a bit back up as we start to see oil going up again. Very good. Thank you very much. Thank you. The next question comes from the line of Frank Mitsch with for excuse me, Fermium Research. Please proceed with your question. Thank you so much. I appreciate some of the commentary with respect to 2nd quarter in the 3rd quarter. I was wondering if I could get it a little more granular in terms of the monthly progression that you saw through the 2nd quarter and how has July actually been coming in in terms of your volumes? Yes. I mean, for both EM and for acetyls, I would say, we the same trend is true. I mean, we definitely saw July being stronger than June and we're seeing August coming in pretty consistent, with July, both in terms of volume and margin. And the fact that August is coming in consistent with July would be more positive than you've seen in prior years. Is that correct? Yes. No, that's correct. Because usually we see the impact, especially in Europe, of extended vacation periods. And we are anecdotally hearing some workplaces in Europe are not shutting down in August like they typically do because they've already been asked for so long. And so we think that pulling through and a bit more strength in August than we typically see. Very, very helpful. And you suggested that industry operating rates in the second quarter for acetic acid were in the mid-60s and Van was in the mid-70s during the second quarter. Where are those numbers now? You know, they aren't significantly moved from Q2 in terms of overall global operating rates. Thanks so much. Yes. Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Good morning. Thanks for taking my question. Just curious, you talked previously about the opportunity for about $0.50 from productivitysupply chain investments as well as $0.50 from buybacks. Could you just update us on, the possibility of realizing that over the next year and a half or so Yes. So, I'm completely confident in our ability to achieve the $0.50 per activity. You know, year to date, we're at $135,000,000 of productivity. So two thirds of the way already to the $200,000,000 target that was associated with that 50 percent, that $0.50. So, feel very confident we'll get that $200,000,000. Just to put it in perspective where that comes from. So about a third of that productivity comes from optimization of our footprint and other manufacturing optimizations, about a third comes from raw material and logistic productivity, and then about a third revenue optimization, SG And A and kind of everything else. So given that it's a very balanced way we get productivity, completely comfortable, we'll achieve at least that $200,000,000 target. And you might recall, we also have another $30,000,000 to $40,000,000 of one time cost savings in 2020 that we expect to get this year, which will be even a bit more help. So things like travel reduction and additional manufacturing savings associated with slowdowns of shutdowns and core functions, etcetera. So feel very comfortable that $0.50, I mean, on the $0.50 share buyback, clearly our balance sheet is in a good position right now. And so we feel like that's certainly achievable, but let me hand it to Scott Yes. So Arun, we did a little over $100,000,000 in the 1st part of the year, which will get us some of that We announced $500,000,000 as part of the polyplastic deal, which will make that an accretive transaction. So we'll get a little bit more, from that And then you've got the balance of the $800,000,000 from that deal that will be deployed, either through M and A or additional repurchases into next year. So between all of that, we should exceed that $0.50 that we had originally called out as we get into the middle part of next year. Great. Thanks. And maybe you could just get your perspective on acetic and van pricing. As you go through the rest of this year and maybe even the next year. I mean, is it fair to assume that there's gonna be limited opportunity there, just given low operating rates and, you know, maybe methanol remaining relatively low as well. How are you looking at kind of overall pricing opportunities in the AC chain? Thanks. Yes. So, I think, if we look at the entirety of the AC chain, I think, pricing will tend to move withdrawals I think we won't see a lot of margin compression, but I'm not sure given the low capacity utilization, we'll also see a lot of opportunity for margin option. And so while we may see pricing go up, I don't as raw if raws go up, I don't think we'll see a lot of additional margin there. I think there's probably a little more opportunity in VAM and downstream of acetic acid, as those tend to have slightly higher utilizations already. And especially now as we move, you know, remained in a strong construction season through Q3, there may continue to be some opportunities there on pricing. But again, as we move into Q4, that tends to fall off a bit. Thank you. Our next question comes from William Blair with Tudor Pickering Holt. Please proceed with your question. It's Matthew Blair with TPH. I was wondering how you're thinking about free cash flow targets for 2020 at one point you're aiming for about $900,000,000 than COVID hit, but you're still at $418,000,000 year to date. You've also outlined the extra $400,000,000 of tailwind from things like productivity and lower CapEx. So do you think something like, I don't know, $1,000,000,000 to $1,200,000,000 of free cash flow in 2020 is a good range? Yes, look, we've previously, before COVID, we were looking at a rate of $800,000,000 to $900,000,000 of free cash flow. As we went into COVID, we've obviously clearly been 6 flow and making sure we take steps to try to preserve free cash flow. We did identify the $400,000,000 that you referenced of additional steps we can take on free cash flow. But again, we've also had a pretty large EBIT decline associated with COVID volumes and large So, we still think we're that given our strong first half performance that we will be north of the $800,000,000 mark on free cash flow, that we had laid out earlier. That's helpful. Thanks. And then the release noted that turnaround costs in 2021 would be meaningfully lower Can you share any numbers around that? And in particular, any details by segment? Yes. So on turnaround, we will be meaning some lower in 2021. If you look at where we are, you know, earlier this year, Again, pre COVID, we thought turnarounds were in the $70,000,000 to $80,000,000 for 2020. We've now pulled in the Frankfort Palms, which is $20,000,000 to $30,000,000. So this year, our outlook, total outlook for turnarounds will be in the $90,000,000 to $110,000,000 range. In 2021, that goes back to $20,000,000 to $30,000,000. And I would say $20,000,000 to $30,000,000 is pretty evenly split between EM and AC. Thank you. The next question comes from John McNulty with BMO Capital Markets. Please proceed with your question. Hi, good morning, Lior. This is Bhavesh Ladaya for John. Hi. 1st, on your commentary for the third quarter. So it looks like obviously, sequentially, EM is expected to see strong growth and then the rest of the segments will be more balanced with their own pluses and minuses. So if you add the $60,000,000 of EBIT or so to the EM and keep the rest unchanged from sequential 2Q levels, we are looking at, call it, $260,000,000 of EBIT for the next quarter. So the question is, is it as straightforward as that or obviously any macro surprises could impact that, but are there any other moving pieces which can cause this target to move materially? Yes. You know, so we are really suggesting for Q3, you know, the recovery will be an We expect to recover about 50% of the decline. We saw Q1 to Q2. We expect to recover going back into Q3. We also get some help from not having a bit of a turnaround in Q3, but that's offset by some further decline in Avincina. And again, in AC and tow, we expect them to be relatively flat with Q2 performance. Got it. And then if you move to the 2021 comments, so you mentioned that you expect demand growth for 2021 to be beyond 2019 levels. Is the implication that you could see higher earnings as well in 2021 versus 2019 levels? Are those pricing and other headwinds remain kind of like the bigger knowns? Yes, so I think we expect for AC demand levels probably similar to 2019. For EM, we would back, assuming the demand trajectory continues level similar to 2019 with maybe some upside due to the project wins that we are having this year in fairly robust sectors like EV, like 5G, like medical. That we think may give us some upside, next year versus 2019. Yes, Babesh, I think the timing of when we see full recovery, we'll be we'll kind of determine exactly where the overall annual earnings end up. If we finish this year and start next year at demand levels similar to 19th beginning of the year, then, then, yeah, I think that, that's a decent assumption. However, if we see things still kind of ramping back to those levels as we begin the year, you may not get to that level till somewhere in the middle part of the year. So there's just the level of visibility we have still to where we'll see that recovery and when we'll see it get back to those levels is still a little bit uncertain. Got it. Got it. Thanks. Thanks, Gloria Scott. Hey, Jesse. We'll go ahead and make the next question the last one for the call. Thank you. Our final question comes from the line of Jim Sheehan with SunTrust. Good morning. Thank you. Can you comment on acetic acid inventory levels in China and also the reports of high water levels on the Yangtze river impacting shipments from Nanjing. Are you seeing any shipment delays because of this? Yes. So, you know, inventory levels generally globally are reasonably low for aseeg asset. I mean, there has been some build in other products made from a seag acid in China associated with the lack of exports. So we have yet see how that play out. I will say on the Yang C, we have not seen any impact at all to our operations, associated with high water level or otherwise. We've not had any supply chain problems. Thanks. And can you comment on political proposals to raise the U. S. Corporate tax rate to 28%. How much impact might that have on your effective tax rate? Yes. Jim, we're still working through those. And I think it's really too early to say. Obviously, we have a pretty global network. And so you won't see it straight, flow through to all of our earnings. So we will continue to look at that. And a lot would depend upon where demand levels are broadly from a global perspective. Thank you. We have reached the end of our question and answer session. So I'll turn the floor back over to Mr. Paul for any additional closing comments. All right. Thank you, Jesse. We thank you for your questions and listening in today. As usual, we are available after the call for any further questions you might have. Jesse, feel free to close out the call at this time. Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation and you may disconnect your lines at this time.