Earnings Call: Q3 2019

Oct 22, 2019

Greetings, and welcome to the Celanese Corporation Third Quarter 2019 Earnings Conference Call. At this time, As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chuck Kirich, vice president, treasurer, investor relations. Thank you, sir. You may begin. Thank you, Christine. Good morning, and welcome to the Selms Corporation Third Quarter 2019 Earnings Conference Call. My name is Chuck Kyris, Vice President, Investor Relations and Treasurer. With me today are Lori Ryock, Chief Executive Officer Scott Richardson, Chief Financial Officer and Todd Elliott, Senior Vice President, Asset Teal Chain. SOME Corporation distributed its 3rd 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'll 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 include forward looking statements. Please review the cautionary language regarding forward looking statements, which can be found at the end of the press release as well as the prepared comments document. Form 8 K reports containing all these materials have also been submitted to the SEC. Since we published our prepared comments yesterday, we'll now open the line for your due to time constraints, we ask that all callers limit themselves to one question and one follow-up question. Thank you. Our first question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your Sorry. Had you had you on mute. Could you give us a bridge of, I'm just looking at the guidance for 2020 versus your midpoint for the full year? Of 'nineteen. And the low end would be 13.4% growth and the high end would be about over 'twenty. So if you could just help us bridge to the low end. I understand the high end would require, some economic improvement. We all understand what that would be. Jensen, thank you. Look, let me start with what we said last quarter where we bridge kind of from the 10 50 to 12 because I'm gonna use the same the same factors. If you remember, when we were going from 10 50 to 12, we kinda said it was the 3rd, market demand, business growth, a third, sorry, a third productivity and a third from our cash deployment, whether that would be M And A or share buyback. So if we look at this year, excluding the impacts of Clear Lake, we feel like the year we're getting around $10. And so if we add productivity to that, that 50¢, if we add another if we add the cash deployment to that. Again, that can be either M and A or share buyback. That's another 50¢ that gets us to the $11. So the $11 that we reflected in that outlook for 2020 is assuming basically current market conditions. Obviously, if we get any upside going forward from an improved demand environment or price, that can move us towards the 12th. Okay. And as a follow-up, when we think about Engineered Materials into next year, the volume has been trending lower, and you talked about destocking last quarter and maybe this quarter, there's a bit of residual destocking. But as we enter into 4Q, should we start to see volume turn positive again? What type of volume growth do you think you can expect for 2020? Yes, so for Engineered Materials, I mean, we are up sequentially on volume second quarter. To third quarter. We saw, the volume up about 3%. So the residual destocking that we referred to was really pretty specific to Europe, where we saw autos decline another 15% quarter on quarter. So that that's really specific. I would say consistent with what we said last quarter. We really didn't see signs of destocking, in China. In fact, we saw volume growth in China. And the USA stayed flattish. So we think we were at the bottom of the destocking last quarter. So really the residual destocking was just in Europe. So for Engineered Materials volume up 2nd quarter to 3rd quar quarter by about 3%. Going into the fourth quarter, I don't know that we'll see volume growth. We see some seasonality typically in the fourth quarter. We see China continue to grow in advance of their first quarter holidays. But typically in the U. S. And Europe, we continue to see slow down. So don't expect volume growth 3rd quarter to 4th quarter, but certainly we expect volume growth based on the project wins that we've had this year as well as just normal seasonality into first quarter next year. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed with your question. Thanks very much. What was your, how many shares did you buy back in 3rd quarter? Yes, Jeff. So we bought about $275,000,000 worth of shares, and that was at roughly a price, a little over, between $105 $106 a share. So That's kind of where we finished and we expect to finish the year, at about a $1,000,000,000 of repurchases for calendar year 2019. So I I assume that means that you bought no shares in September. Is that right? No, we've been steadily buying shares that since September. You know, prior to that, we were opportunistically buying them, but since then we've just had a steady pattern of repurchase. Okay, great. Thank you very much. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question. Hey. Good morning. Laurie, when you think about, you know, leverage to maybe better times and and and the the extra dollar. Is that that dollar to 12 doll I'm sorry. Is the extra dollar per share to 12? Kinda evenly split between the acetyl chain and EM and and and what defect needs to happen in terms of those segments to to sort of get that extra push? Yeah, Mike, I think that's right. You know, the I would say it's pretty much evenly split between at Tills and EM, you know, we don't expect any year on year growth, obviously, in acetate tow. I think, you know, in asset sales, that growth, of course, we're already assuming, you know, no impact from Clear Lake, but that growth really probably comes from tightness in the market and improved pricing, into next year. In EM, I would say it comes from a volume with no destocking and starting to move closer to a return to normalcy in terms of market conditions and demand. Right. And then in terms of acquisitions, given that it is an area that could boost earnings next year. Any thoughts on the environment size? Where do you think the opportunities are are are focused on going forward? Yes. So if you look at, you know, our use of cash, you know, first, our first priority is really organic investment. And if you look, of course, this year, we are up against 400,000,000, for CapEx next year. That goes up to 500,000,000. And that's really investment organically in ourselves, in growth projects, and productivity projects. So that's that's kind of the first piece of cash next year. M and A, we continue to look at everything bolt on acquisitions to transformational look, we we haven't found anything yet this year. We wanted to invest in, quite frankly, because we have a lot of people wanna to get 18 kind of multiples when we're in a 19 price environment. So we're we're always gonna do an M and A if it makes sense and if and it's the right price and it adds value to the shareholder, and we just haven't found that. So, you know, if we look forward into next year, we're going to continue to look for opportunities clearly, our main focus is on the EM side trying to acquire additional molecules or different technologies or additional geographies that we wanna be in. But but quite frankly, we don't have anything lined up at this point. We just continue to look to see what's out there and talk to various companies that we think would be attractive. Got it. Thank you. Our next question comes from the line of Bob Court with Goldman Sachs. Please proceed with your question. Thank you. Good morning. Laurie, could you talk a little bit about maybe some specifics on the supply chain improvements. You've got teed up in engineering materials. What sort of efforts are you making or give you some granularity on on exactly what you're doing there? Yes. So, Bob, really, as we've grown our EM volumes and particularly after we had the acquisitions over the last couple of years in nylon, and TPE and a few other product lines. We really found we were straining our supply chain system because we've added a lot of SKUs We've added a lot of smaller volume materials, and why you know, this is good for earnings. It has been a strain on our supply chain system as it exists today, which is largely manual or self spreadsheet based. And so we really looked now to make sure we continue to deliver, you know, high quality product to our customers on time. And so we've taken efforts over the last 6 to 9 months really to, strengthen our existing system. So we've added some people. We've added some to really continue to do it manually, but to do it more effectively and more efficiently. Our next phase is really, and that's that's kept us running well and kept us in good shape with our customers. But our next phase is really to try to automate that. So we're looking at more IT overlay, more use of, for example, better forecast seen using statistics versus the very manual process we have, an IT system that handles skew better, adding barcoding at our site. Where we don't have it to make this all more automated. And so that effort is going on now. Phase 2, we're working with the consultants really identify the systems and the pathway to do that. And that should be completed over the next 12 to 18 months. Gotcha. And could you give us on the acetic acid side, maybe a a look around the world in terms of operating rates? And I'm particularly curious China. I know you guys had talked in the past about maybe seeing a few more plants there, might come out of the market and help tighten things. Where does that stand these days? And I guess I saw your main rival there is thinking about adding a 1,000,000 ton plant in China. So What's what's sort of the outlook you guys see there? So I think if you look over the last few years, we've seen a few plan come out for environmental and other reasons in China. We haven't really seen any build. As we have, we've seen a few people maybe close capacity a bit, but I'd say, you know, volume, supply has been flat to maybe slightly declining in Asia and and really around the world. We also saw the the announcement. Obviously, that would take you know, some time to get built. And maybe I'll ask Todd's comment more specifically. But generally, I'd say we've we've seen supply fairly stable. Now in 2018, there was a lot of outages in the industry, which helped tighten supply a bit. This year, we've not seen as many outages So, you know, going forward, again, other than our expansion in Coeur Lake, now the one that's just been announced we haven't seen any other, bills going on. And quite frankly, the economics for most people haven't supported builds other than the kinds of things we've been able to do with capacity creep and, you know, very economical builds versus greenfield build. Yes, Todd. Hey, it's Todd Elliot. We're, we're tracking, with our reconfiguration project in Clear Lake. Of course, we're adding about 800,000 tons there in Clear Lake by 2022. So permits in place, both for that as well as the Metinal expansion plan for Clear Lake. So that tracks that will we think the first, world scale best technology unit that hits the marketplace in the near term So we're tracking towards that date. More specifically to your question, today, if you just look at utilization rates, I think we're focused mainly on China. Of course, 'eighteen, we saw utilization rates around the world push up in the 90% range, both globally as well as in China. China fell down to the probably under 70% utilization rates for most of this year. We saw that nudge up towards the end of Q3. We would call utilization in China around 70 and then towards the end of Q3, probably around 75%. So we actually saw some improvement Some of that was supply related due to some supply disruptions as well as improved demand prior to the Chinese national holidays. So little bit better trading conditions in China at the end of Q3. You also saw pricing move up at the end of the quarter. I think the question now is, is that sustainable? We're watching that, of course, as we're into Q4 and certainly looking for better conditions into the new year. Really main focus on demand recovery. Our next question comes from the line of John Roberts with UBS. Please proceed with your question. Deals, you drove down the inventories of the downstream products to make up for the shortfall. It sounds like you plan on rebuilding those inventories. Why not just continue with low inventories at least into early next year given the economic backdrop here. You know, so look, we we do have, lower working capital this year that is certainly helping us typically, we have lower demand for BAM and emulsions in the fourth quarter for seasonality anyway. So that's quite frankly why we comfortable driving down our inventory. Look, it's just a choice point. Typically, we see a good pickup in first quarter. And, you know, there's lower raw material costing right now. So we still think it makes sense to take advantage of that lower raw material cost and rebuild inventory. The extent we can in the fourth quarter. And maybe, John, it's Todd again. Just to add on, this shift to derivatives has been intentional this year. I mean, we saw opportunities to move about 5% of our acetic acid mix downstream either viral acetate or to emulsions. And I think we mentioned the prepared remarks, we're up over 15% year over year if you just look at our volume patterns downstream to those derivatives. So we think that That's been a positive move. That's allowed us to keep earnings up around $190,000,000 all year, really since Q1, all the way through and maintain margins above 20%. On an EBIT as a percentage of sales basis. So that intentional shift to derivatives, we think it's been the right call, of this year as we saw better opportunities in those trading conditions. And then as a follow-up, in Engineered Plastics, you cited both light weighting of traditional vehicles and EVs as both growth drivers here. Could you just remind us of the relative Celanese content in a typical traditional vehicle versus a I don't know if there is one in average EV. So it's content higher on the EV side? I would say, so the opportunity for content is higher on the EV side because, obviously, you have the battery, which requires film, which we provide a lot of There's also a lot more electrical connections in an EV vehicle than a traditional vehicle. So the opportunity for content is higher on EV. But frankly, you know, EVs are still a very small percentage of the fleet. So we we have a, you know, we're we're happy with the amount of content we currently have in EVs, but you know, it's still a small percentage. So I see vehicles are still highly important to us now and and for the next many years. You know, the good news there is there as we continue to have good penetration in auto, we continue to increase the amount of content that we have in vehicles. You might have seen the comment that we've grown more than 11%, annual growth rate in the amount of kilograms per vehicle. Now by 2 third of that actually comes from our M and A, and that's why we did the M and A to acquire nylon and TPE to have that opportunity to penetrate more vehicles, about 1 third from our legacy materials. Obviously, you know, volume is a metric. We're also very important on what is the value of the aerials we're putting in vehicles because we want to be contributing high value, high margin, obviously, polymers into vehicles. So we're looking at both, but again, you know, all of the trends, lightweighting, avoiding the pains, because of emissions, our order, our durability, replacement of other plastics for functionality, these are all important trends. Both NICE and EV. Thank you. Our next question comes from the line of P. J. Juvekar with Please proceed with your question. Yes. Hi. Good morning. Hi, Vivek. Question on Massedikos. Looks like he pushed more asset into China. And then in Western world, you devoted more volumes to VAM and emotions. Is that a strategy sort of going forward? You had a similar strategy last quarter. And what is what is the future of Singapore plant You talked about rationalization in Asia. So what's the future of Singapore plant, especially in light of the new capacity announced by BP? Thank you. Yes. So thanks, P. J. So, you know, really our strategy in asset sales is to follow the money. So, you know, if you look at 2nd quarter, we We pulled volume out of China into the Western Hemisphere where feed acid pricing was better. We pulled it into VAM and other derivatives where pricing was better. As Todd referred to earlier, we've actually seen an increase in pricing in Asia, especially here at the end of the quarter. And demand for volume. So we actually moved more volume back into China, move volume out of Europe where we saw a real softening in the third quarter. And, as we started this new softening in the Americas move volume out as well. So we're really, you know, that is our business model, which is to have flexibility and capability to move our molecules around between regions and between acetic acid and derivatives. In order to maximize our returns. And that's how we deliver, you know, pretty stable, asset sale chain returns. And as far as Singapore, I mean, we're, you know, we're still working through that. Obviously, we with the announced expansion in Clear Lake, we said we'll take capacity out of Asia. We are still looking to see how everything develops in terms of pricing in China, pricing in Singapore, obviously IMO 2020 and the impact on pricing for for fuel oil could have an impact around that decision. So we are still preserving our the Scott, you did a $275,000,000 buyback. You're on pace to buy a $1,000,000,000 worth of stock. It looks like the pending acquisitions aren't quite there. So can you give us an update on the overall M and A strategy? You know, there is some talk about, right, strategic split or an RMP transaction, So can you talk about that and generally sort of the ongoing consolidation in the industry? Thank you. Yes, let me let me hit the buyback question first Fijay, and then I'll let Lori comment, bring me on M and A. So, you know, we did $275,000,000 in the quarter. That was at an average price around a $113. We did, we've done $775,000,000 for the year at an average price between $105 and a $106 kind of where we stood when we finished the quarter. We expect to finish at a 1,000,000,000, as I said earlier. You know, we're gonna be opportunistic with cash flow. We are increasing CapEx. Organic investment is our priority, for extra cash. We're taking FX up, we're gonna finish around 400,000,000 this year. We'll take that up, to 500 next year, possibly even a little more than that. As we have, attractive projects. And, you know, that's always gonna be our first choice. Then we look at bolt on M and A. In this environment, know, we have not seen people really being overly willing to sell in a more depressed economic environment. And so we've repurposed that cash towards buybacks and we'll continue to do that opportunistically. Yeah. And a transformational M and A, I mean, I know there's been a lot in the press and many of you have written about it and taken certain positions. I think correctly, many of you said, you weren't surprised by discussion of transformational M and A. And I think we've been very clear here and Mark before me about, you know, we will continue to pursue whatever form of M and A is the most value added to the shareholder. Look, we regularly use advisors to help us evaluate options. It's it's an ongoing activity to for us. That hasn't changed. And quite frankly, there's really no change in our philosophy around whether or not it's attractive to split the company. If at some point in time, it becomes attractive to do a split because we've done other activities, we would consider doing But it is still our opinion that to split the company as it is today, really wouldn't add value to the to the shareholder because of the dis synergies associated with the split. And what we see is not much value uplift just from having a split short of some sort of other transformational activity. Next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question. Wanna dig in a little deeper. You called out disappointing joint ventures in the, EM segment. Can you kind of walk through Saudi and Korea and Japan? And what are you seeing there that's disappointing? Is it structural? Is it just macro? Maybe kind of tease some of that out? Yeah. So I look, I think the the let me start with, Saudi, with our Argentina joint venture. We had indicated last quarter that we expected about a $10,000,000 uplift from Evincina this quarter versus 2nd quarter coming out of the turnaround in Evincina. We actually only got about 4,000,000. So a couple of things there. One is we have a little bit of residual turnaround since that still hit the books in third quarter. And the other thing is we had a, gap tax rate adjustment that we booked this this, quarter. So we didn't get everything we wanted out of Evan Cena this quarter. Also, you know, if we move to to the Palm joint ventures, what I would say is, you know, as as we've really worked to move Palm and as we've seen challenge and palm pricing with the downturn in autos. Our joint ventures have have suffered as well, and maybe even more than our own volume. So we've not seen the returns from those joint ventures, that we enjoy, for example, saying 2018. But I would say it's generally reflective of general market conditions for the products that they make and the regions that they make them more so than anything specifically around the operations of the joint venture. Okay. And then, in tow, with the shutdown of the Mexican plan happening this quarter, what's the impact of that on earnings? And then what should we see when we come out of that from kind of increased earnings on the backside? And and when will that hit? Will that hit squarely in Q1? Or will we have to wait a little bit for that to flow through? Yes. So open the line, little shut down at the end of, this month. As as we had discussed earlier, you know, there was about $100,000,000 to $110,000,000 of costs that came with that shutdown, $10,000,000 for personnel and another $95,000,000 to $5,000,000 of non cash items, so really accelerated depreciation and impairment. So, you know, we'll see those hit this year. That shutdown and the savings that come with it going forward make up a significant portion of the 50,000,000 of productivity we needed to see to maintain flat earnings and acetate tow going forward. So what I would say is given that and the market dynamics, I would expect asset pay tow going forward. So next year, to look very similar to a bid this year, because these savings are all already baked in Our next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question. I guess first off, back to the, you know, 2020 guidance, Laurie, you know, how would you have us think about quarterly phasing as we think about 2020 And relative to that, you know, how are you thinking about volumes at the low end of guidance? How would that shake out by the 2, core segment, EM and AC? Yes. So, look, I wouldn't, we haven't really looked at it quarter. So I would assume, you know, quarterly volumes tend to follow what has been our historical patterns for earnings, I wouldn't think that's much different. We see some fourth quarter seasonality. You know, we usually see some down in the first quarter for China. I mean, I would just look to the past really for how the quarters tend to bake out. We don't see that being very different this year. I mean, obviously, we start to we see these full year impact of some of the expansion projects we've done. So that has some volume uptick in the appeal training, but we should also start seeing some volume impacts, as well as some productivity impacts from some of the new projects we've done in E. M. So the new compounding lines that we've just completed in Nanjing and Suzhou. So, you know, I would, you know, typically we see increases in EM of kind of mid to high single digits. Acetate a little bit lower than that, a couple of percent. I wouldn't say that a lot different next year. A lot of what we're seeing in terms of What's baked into the 2020 outlook is just similar markets to this year, the absence of Clear Lake and really productivity and cash deployment. So the things within our control. Okay. And then in terms of the destocking comments you made specific to EM and, Europe. Do you see that sort of phasing through as we went to 4Q, or do you think still think that there's going to be some residual destocking with specific to autos for 4th quarter and EM? Thanks so much. Look, I really think if we look at 4th quarter. What we're seeing is pretty typical of the seasonality we see. I mean, China, you know, as an example, if we look at our order books in our October versus July, China's up about 2%. That's pretty typical that we see China come up in the 4th quarter and have good demand in, in advance of Chinese New Year's, in the first quarter. On the other hand, you know, in the U. S. And Europe were flat to slightly down across the sectors, which again, is also fairly typical from a seasonal basis. So, I don't really see a lot more destocking occurring. Like we said, we saw it really in Europe as a result of the really severe decline in auto in the last quarter. But we really every other signal is that we're really we've really seen the destocking occur in all the other sectors. And so we don't expect destocking to occur in fourth quarter. But again, we will see some lower volumes outside of China associated with just seasonality, both in our till 10 AM. Our next question comes from the line of Lars Alexander with Jefferies. Please proceed with your question. Good morning. Could you flesh out in a little bit more detail when you're thinking about the longer term optionality for acetate tow, or, you know, or what, you know, to what degree the degree freedom there are more limited than you would have thought initially. And secondly, can you update your thinking about opportunities to pull forward productivity and working capital efficiency gains in 2020, 2021. Yeah. So, look, I mean, as I said, too, I think, you know, we feel confident going into 2020 of our ability to maintain relatively flat earnings. We do see pressure on volumes as we've seen, quite frankly, as slowing down a little bit, especially in China. Where in fact, China, recently we've actually seen growth in, in cigarette demand. So you know, we, we do expect continuing volume and price declines in asset pay tow, but with the Oakett line closure, with those other productivity, we still see and expect that to be able to maintain flat, certainly through 2020. Yeah. And then on, productivity and working capital, Lawrence, I think a lot of the investments that we're making is we increase organic investment, a lot of those are tied to revenue generation, but it's also tied to productivity and working capital. So for example, we've talked about the need to invest more in Engineered Materials in Asia, that improves our supply chain. It also lowers, our overall inventory level. So a lot of this is very consistent with the investments that we're making. We've we've aggressively been working working capital now for a while. You've seen that reflected in the improvement of free cash flow. Productivity is we've seen an uptick in productivity this year. We expect that cost reduction productivity to continue into 2020, because we're really focused on what we can control. What are the controllable actions that are unique to Celanese They're gonna drive, the earnings growth from 19 to 20 because as we said earlier, we're just not expecting fundamental improvements in our end market. Chance. Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Good morning. You've indicated about a $500,000,000 capital expenditure budget for 2020. I guess 2 parts. Could you talk through how much of that is growth versus cost reduction projects and maintenance. And then more broadly, that's about double what the company was spending from 20 14 through 17. Should we think of 500 as as a new normal level for the company, or would you expect that level to come back down in the out years as you complete your expansions, in Texas, for example. Yes. Thanks. And, yeah, so it is about double. Let me let me characterize it for you. So if we if I look at historically where we've spent, We've been roughly $200,000,000 a year for EHS and what I call maintain margin projects. So reliability reliving of equipment, things we need to do just to keep the current assets running and running consistent with good safety standards and you know, meet environmental compliance. So that's $200,000,000 a year. We've been another $200,000,000 a year at his like this year, $200,000,000 a year in productivity and revenue generation projects. So things like the Clear Lake expansion, things like improving energy efficiency of boilers, things that give us, you know, a high quality greater than 20% return. As we go up to $500,000,000, all of that growth is really in productivity in rev gen. So it's the Clear Lake expansion projects. If we, so, you know, I would just say 200 is kind of our base level running maintain capital. And then everything you see above 200 is really towards productivity and revenue generation. You know, just to put on that perspective, our return on our total portfolio, including kind of those non return based projects, is greater than 20%. So we still have great opportunity to invest in ourselves and value added projects. That will be a great return for the shareholder. If I go past 2020, so 2020, 500,000,000 If we go into 2123, we actually make the levels above 500,000,000 as we look at our Chinese localization projects, building additional EM capacity in China, other productivity and rev gen products around the globe. But I would say kind of post that period of growth that we've outlined, we would return to the approximately less, you know, the less than 400,000,000 level. Of ongoing capital. Great. That's very helpful. And secondly, if I may, I want to ask you to just talk through the outages, in a little bit more detail. I saw in your management remarks last night that you had brought Singapore down for maintenance, I think just prior to the incident, at at Clear Lake, did you have other outages and and, you know, what's your what's your latest thinking on when the CO unit might restart at Clear Lake. Yeah. So let me address Singapore first. So Singapore was a planned turnaround. The timing for the Singapore turnaround and the duration of the Singapore turnaround is tied to our CO producers turnaround in Singapore. So we only have one source of CO in Singapore, and they had to take that unit on turnaround on a planned basis, and that really account for the duration of the outage in Singapore. So I would put that into the kind of normal, operational bucket of events. Clearly, you know, Clear Lake was an unplanned downtime. We've been working through the impacts of that outage. As of today, you know, methanol's package full rate after this restarting and, and really, you know, at partial rates, and we'll be at partial rates until we get the CO plan up, then we'll be up before the end of the week. And we continue on our CO repairs, which will put us back at full rates, you know, sometime within within the fourth quarter. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Good morning. Laurie, Laurie, going back to BP's million ton JV announcement, what do you think they're seeing in China that you're not as you rationalize from your capacity in that region? So I'll ask Todd to comment, but as we we've looked at that. I don't know that they're seeing anything. We're not. What we do know is they have the demand for that much acetic acid in their own derivative system. And apparently, as we have done with methanol and others, they have decided that being more integrated along their value chain will give them greater value. So we wouldn't actually expect any of that is seedy acid to show up on the market. We expect that to be consumed in their own derivatives. And based on our view, the timing on Yes, Dave, it's Todd. We're just studying the news and trying to understand it better. I mean, this is, at least as far as we sell an MOU announcement at this point. So it's early days in the project. It will take some time to work through the details, I'm sure. And all the work that would follow in terms of engineering, ultimately, timeline of projects. As I said before, we're pleased that we're on track with our expansion in Clear Lake by 2022. So we'll we think we'll be 1st, with capability think Laurie is right. I think this is largely an integration move, upstream PX down for PTA and ultimately a polyester to service the Chinese localized demand for polyester in the region. So we think it's largely an integrated announcement and will have a little effect on the merchant market. Got it. And just lastly, on acetate tow, any potential for a price increase given perhaps tire supplydemand post the closing of your Mexico facility? Yes. So, we do believe in time, as we rationalize, others rationalize in the industry that there will be potential for price increase. I mean, quite frankly, what we see is for more transactional short term contracts. We have been able to push through price increases for some of our longer term, contracts you know, we've seen price decline. So, you know, it's about imbalance at the moment, but we certainly project going forward, while the continue to be tension around price, We actually think the price environment will be fairly stable. And at some point in the future, some opportunity to push price up. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Great, thanks. Good morning. Just wanted to go back to the portfolio questions in the past. I guess you had noted that the dis synergy had kind of come down to around 50,000,000 a year from your prior estimate of a 100. Have you continued to make progress on on bringing those down? And if so, you know, how would you characterize that now at this point? Yeah. So, look, we we continue to always look at how we can do this, but there's a certain amount of dis synergies, which is always going to exist if you're splitting into 2 companies. You have stand up to management team. You have to have 2 back offices. I mean, there there is always going to be a certain amount of dis synergies associated with that. So maybe let me ask Scott, if he has any more specific comments. Yeah. I mean, we're you're right. With that trajectory of of, statements that we've made in the past, 100 down to 50. We continue to work it, work on the tax side of things, leakage, etcetera. So we have brought it down below 50, but I would say it's closer to 50 than it is to 0. Great. Thanks. Just kinda understanding, when you think about China, what's it gonna take for you know, what are some of the markers you're looking for to see that there is a an improvement in primary demand or at least a stabilization, you know, would it be inventory levels or, anything else that we should be, you know, watching? Thanks. Yeah, you know, look, I think, you know, as much as anything, we look at price volatility, I mean, we're we're anxious to get further passed this national holiday to see if demand returns, you know, prior to Chinese New Year's. Obviously, the same factors affecting the the globe concerned about tariffs, concerns about global recession, these also impact China. But we were just looking for. This was signs of of sustainable, kind of, sustainable demand lift, to occur. I mean, again, we saw an increase in Asia, in the third quarter in volumes and price. It seems, you know, it's it's not greatly improving at the moment, but it's also not greatly declining. So we see that as somewhat favorable. But we need some sustainability in the response, which is probably what we haven't seen yet. Is that anything you want? No, I think that's right. Of deals. We, just like Larry said, we look at order books on a daily, weekly basis, supplydemand, utilization trends are critical as the effect the pricing environment, raw materials, of course, the enephenol or olefins, NTO rates. Your point on inventory levels, I'm sure the same across the whole of the company, both finished goods inventories on our customer side, particularly. I mean, so So all those classical markers as fundamentals are willing to track and watch, all the time. Thanks. Our next question comes from the line of Matthew Blair with Tudor Pickering. Please proceed with your question. Hey, good morning. The prepared comments mentioned Nanjing was running at lower rates due to a request from local authorities. Was this around air quality and you expect it to persist into the fourth quarter in 2020 as well? Yes, no, you're exactly right, Matthew. So what we had and what all of industry had was a request by the Chinese government to reduce rates for air quality purposes in advance of the national holiday. Since then they, you know, when we went back and asked to have that lifted, they were willing to do so. I think reflecting on a long relationship with them and and their understanding of our business needs. Since then, I think that's mostly been listed for most of industry in the fourth quarter. So, look, I I expect it's going to continue from time to time in China. I would expect, you know, maybe it will happen again right before the Chinese New Year. That tends to be a pattern. So I think it will happen again. Right now, we're not seeing that being an impact on 4th quarter. And the good news is we were able to ramp rates back up as needed following the Clear Lake incident. So we we we, we worked, you know, with the team there and certainly with the local government were, allowed to run at full rates as we expected. And that was helpful to cover the from a network perspective, a loss of the fill out capacity. The only other thing to watch maybe late in the year is the winter season heating season. I mean, typically depending on the the energy profile and sources for energy production and as well as industrial activity, there can be curtailment activity towards the late November, December timeframe, depending on various conditions. So we'll watch that. Sounds good. Thanks. And then your EM project wins last year rose about 47%. You're on a similar pace this year, but EM volumes are down about 5% this year. Could you just help me reconcile those two numbers? I mean, I guess that implies your base business is seeing some pretty volume declines. Is there anything changing in terms of the size or the profitability of the average project? Yes. So, look, I would say the size of the average project, if you talk about volume, is is less than it was, and it reflects the fact that we're doing more projects and more different types of projects. You know, I think it's also important to realize that some, you know, these projects come in three buckets. I mean, you have some that are very long term return projects. So for example, in the medical field and some of the auto, you know, some of these are projects that continue to pay out for, you know, 5 plus years. And then you probably have another bucket that, you know, maybe you get 1 year from from that or maybe 2 years. And then you have a number of them that are actually very transactional. So it's a project that moves volume, but it's a one time move. So not all of these projects are things that pay out for 5 years. And so what you see is while we we can have up to 15% growth from EM projects in a in a year's time frame, it, you know, could very well be that only, you know, 5% or something of those continue. And then, of course, you have attrition normally from other projects rolling off, as well as just other attrition. So, you know, I mean, project wins is an important metric for us because it's just as how good are we generating materials, but you know, they are smaller this year because of the economic conditions. And we are seeing kind of more in the base with slower GDP and slower demand around the world. So that all comes into play, but we still think it's important because this is what's allowing us to shows a sequential quarter on quarter growth that we've shown in the last quarter. It's continuing to deliver these projects. And as we referenced, in our, in our, notes, you know, we had, we had a lot of great projects win this quarter. Now not all that, that volume doesn't show this quarter shows up many of those were long term. We had some medical project wins. We had some auto project wins. You know, a lot of we had some buy project wins. A lot of those will show up over the next 2 to 5 years, not necessarily next quarter. Very helpful. Thank you. Our next question comes from the line of Jim Sheehan with SunTrust Robinson Humphrey. Please proceed with your question. Good morning. Thank you. How should we think about plant turnaround costs in 2020 versus 2019? Yeah, great question. So turnarounds in 2020, we actually expect to be up about 50,000,000 overall, we have a number of big turnarounds next year, including our joint venture methanol plan in Clear Lake, some of palm unit. So these are big units that only come up for turnaround every 3 to 4 years. So we do have a significant turnaround workload next year. But that's baked into our numbers. The additional productivity that we're delivering will help offset that And that's already anticipated in the 2020 outlook that I gave you. Thanks. And Regarding the General Motors, labor union strike, how are you thinking about automotive shutdowns and whether the impact is this year will be normal or above normal. Yeah. Yeah. So for the GM, specifically, that's not a big customer of ours. We didn't have a lot of exposure to GM, so we haven't seen much impact from that. You know, clearly there are other autos that would have had a bigger impact. I don't know that we've seen that as a major impact going forward for us. I mean, we tend to be spread across quite a lot. Obviously, we have a lot of auto in Europe that may be a bigger exposure, China, as we said, auto actually has picked up recently. Now I expect some consolidation of auto in China, but again, I think we're we're well positioned for that. Thank you. Christine, we'll make the next question our last question. Thank you. Our final question comes from the line of Matthew Day Bank of America Merrill Lynch. Please proceed with your question. Can you just walk a little bit through the buckets on the productivity gains of $0.50 then, because if I recall from Duffy's question, you had mentioned, part of that savings is going to go to the savings from the closure in Mexico. And then you had just mentioned part of that will go to offsetting the maintenance expense next year, which is already looking to maybe be offset by the $45,000,000 in losses you're taking this year on Clear Lake. So where are those $0.50 bucketing out? And then does that mean the net gains from productivity are less than 50 Yes. So, well, no, no, I say, well, no, the net gain, this is net gain is $0.50. So this actually, because turnarounds and everything else, obviously, requires a much higher level of productivity than that. So this is net what we get of plus turnarounds plus productivity, etcetera. So, you know, where does it come from? So Ocotlan as well as Lebanon, as well as other shutdowns that we've had and foot print, management, and reduction, that goes into the productivity bucket. There's, there's a bucket in there, which is we work very hard on energy and cost savings in energy, like I said, boiler configuration things to help lower energy usage. That goes into productivity. There's also, raw material contracts and things we've done to buy forward or do things with raws to manage our raw material costs, versus the spot market that boats, for example, is going to productivity. So I'd say, you know, those are the major buckets you know, as well as just normal, you know, optimization and maintenance bin, optimization of personnel. We've done a lot, which you've seen show up in terms of right sizing our organization and reorganizing for the most productive organization. You've seen some of the severance costs associated with that. So those are all buckets within productivity. Got you have any other perspective on that? Okay. No, I think that that hits it. Okay. And then, so my last one, I guess, price was down about 2% sequentially and year over year in EM. I think you had mentioned, PoM Palmas being one part of weakness, but what are the other primary markets responsible for the softness? Is this competition or deflation in raws? And then on the latter comment, where are you seeing the primary savings NDM as your spread draws has improved? Yes. A good bit of it I would say is is next. I mean, in general, we've been able to hold our price in a declining raw material market. So that, that has helped us, but there, you know, in a few of our materials. We've seen some mix impact, you know, for example, you know, less medical, more, you know, more lids or less lives more general view are. I mean, so there's a few areas where that's happened, but I'd say it's kind of more of a mix this year, because in general, we've been able to hold pricing despite as find in raw materials across EM. And then, I guess, was organic volume growth in EM would you say or I guess what the better question is, how much did acquisitions contribute to EM volume growth on the quarter? Is that about 2% or something? No. So volume volume drop on yam was up about 3% I would say most all of that is organic. You know, there wasn't a a notable difference in terms of acquisition growth. I was thinking year over year. No, I was thinking year over year. No, I was thinking year over year, but I can square that. Thank you. Mr. Kairus, I would now like to turn the floor back over to you for closing comments. Thank you, Christine. Yeah. I would like to thank you for listening in today, and thank you for those who participated. As usual, we're around after the call for other questions. And Christine, you can close the call out after that. Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you