Greetings, welcome to the Celanese Corporation third quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chuck Kyrish, Vice President, Treasurer, Investor Relations. Thank you, sir. You may begin.
Thank you, Christine. Good morning, and welcome to Celanese Corporation third quarter 2019 earnings conference call. My name is Chuck Kyrish, Vice President, Investor Relations, and Treasurer. With me today are Lori Ryerkerk, Chief Executive Officer, Scott Richardson, Chief Financial Officer, and Todd Elliott, Senior Vice President, Acetyl Chain. Celanese Corporation distributed its third 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 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 directly for your questions.
Thank you. We will now be conducting a question and answer session. Due to time constraints, we ask that all callers limit themselves to one question and one follow-up question. If you have additional questions, you may re-queue, and those questions will be addressed, time permitting. If you would like to ask a question, press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Sorry, 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 2019. The low end would be 13.4% growth. The high end would be about over 20. 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.
Vincent, thank you. Let me start with what we said last quarter where we bridged kind of from the $10.50 to the $12, because I'm going to use the same factors. If you remember when we were going from $10.50 to $12, we kind of said it was a third market demand, business growth, a third productivity, and a third from our cash deployment, whether that would be M&A or share buyback. If we look at this year, excluding the impacts of Clear Lake, we feel like the year would end around $10. If we add productivity to that's $0.50. If we add the cash deployment to that, again, that can be either M&A or share buyback. That's another $0.50. That gets us to the $11. 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 12.
Okay. As a follow-up, when we think about Engineered Materials into next year, the volume has been trending lower. You talked about de-stocking last quarter and maybe this quarter there's a bit of residual de-stocking. 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?
For Engineered Materials, we are up sequentially on volume second quarter to third quarter. We saw the volume up about 3%. The residual de-stocking that we refer to was really pretty specific to Europe, where we saw autos decline another 15% quarter-on-quarter. That's really specific. I would say consistent with what we said last quarter, we really didn't see signs of de-stocking in China. In fact, we saw volume growth in China. The U.S. stayed flattish, we think we were at the bottom of the de-stocking last quarter. Really the residual de-stocking was just in Europe. For Engineered Materials, volume up second quarter to third 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 holiday. Typically in the U.S. and Europe, we continue to see slowdown. I don't expect volume growth third quarter to fourth quarter. 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.
Okay. Thank you very much.
Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.
Thanks very much. How many shares did you buy back in the third quarter?
Yeah, Jeff, we bought about $275 million worth of shares. That was at roughly a price between $105 and $106 a share. That's kind of where we finished. We expect to finish the year at about $1 billion of repurchases for calendar year 2019.
I assume that means that you bought no shares since September. Is that right?
No, we've been steadily buying shares since September. Prior to that, we were more opportunistically buying them. 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 Michael Sison with Wells Fargo. Please proceed with your question.
Hey, good morning. Lori, when you think about leverage to maybe better times and the extra dollar, is the extra dollar per share to $12 evenly split between the Acetyl Chain and EM, what do you think needs to happen in terms of those segments to sort of get that extra push?
Yeah, Mike, I think that's right. I would say it's pretty much evenly split between acetyls and EM. We don't expect any year-on-year growth, obviously, in acetate tow. I think, in acetyls, that growth, of course, we're already assuming 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 de-stocking and starting to move closer to a return to normalcy in terms of market conditions and demand.
Right. 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 focused on going forward?
Yeah. If you look at our use of cash, our first priority is really organic investment. If you look, of course, this year, we are up against $400 million for CapEx. Next year, that goes up to $500 million, and that's really investment organically in ourselves, in growth projects and productivity projects. That's kind of the first use of cash next year. M&A, we continue to look at everything, bolt-on acquisitions to transformational. Look, we haven't found anything yet this year we wanted to invest in, quite frankly, because we have a lot of people wanting to get 18 kind of multiples when we're in a 19 price environment. We're only going to do an M&A if it makes sense and it's the right price and it adds value to the shareholder, and we just haven't found that.
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 want to be in. 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 Koort with Goldman Sachs. Please proceed with your question.
Thank you. Good morning.
Good morning, Bob.
Lori, could you talk a little bit about maybe some specifics on the supply chain improvements you've got teed up in Engineered Materials? What sort of efforts are you making? Or could you give some granularity on exactly what you're doing there?
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. While this is good for earnings, it has been a strain on our supply chain system as it exists today, which is largely manual or Excel spreadsheet based. We really looked step back and said, "Okay, what do we need to do right now to make sure we continue to deliver high-quality product to our customers on time?" We've taken efforts over the last six to nine months, really to strengthen our existing system.
We've added some people, we've added some processes to really continue to do it manually, but to do it more effectively and more efficiently. That's kept us running well and kept us in good shape with our customers. Our next phase is really to try to automate that. We're looking at more IT overlay, more use of, for example, better forecasting using statistics versus the very manual process we have, an IT system that handles SKU better, adding bar coding at our sites where we don't have it to make this all more automated. That effort is going on now, phase 2. We're working with a consultant to really identify the systems and the pathway to do that. That should be completed over the next 12-18 months.
Got you. Could you give us on the acetic acid side, maybe a look around the world in terms of operating rates? I'm particularly curious in 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? I guess I saw your main rival there is thinking about adding a million-ton plant in China. What's sort of the outlook you guys see there?
I think, Bob, if you look over the last few years, we've seen a few plants 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 volume supply has been flat to maybe slightly declining in Asia, and really around the world. We also saw the announcement. Obviously, that would take some time to get built, and maybe I'll ask Todd to comment more specifically. Generally, I'd say we've seen supply be 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. Going forward, again, other than our expansion in Clear Lake, now the one that's just been announced, we haven't seen any other builds going on.
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 very economical builds versus greenfield builds. Todd, do you want to
Bob. It's Todd Elliott. We're tracking with our reconfiguration project in Clear Lake. We're adding about 800,000 tons there in Clear Lake by 2022. Permits in place both for that as well as the methanol expansion plan for Clear Lake. That tracks. That will, we think, be the first world-scale best technology unit that hits the marketplace in the near term. 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. 2018, we saw utilization rates around the world push up into 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%. 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 holiday. A 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 that sustainable? We're watching that, of course, as we're into Q4 and certainly looking for better conditions into the new year. Really, the main focus on demand recovery.
Got it. Thanks.
Our next question comes from the line of John Roberts with UBS. Please proceed with your question.
Thank you. In acetyls, 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?
Look, we do have lower working capital this year. That is certainly helping us. Typically, we have lower demand for VAM and emulsions in the fourth quarter for seasonality anyway. That's quite frankly why we felt comfortable driving down our inventory. Look, it's just a choice point. Typically, we see a good pick-up in first quarter. 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 inventories to the extent we can in the fourth quarter.
John, it's Todd again, just to add on. This shift to derivatives has been intentional this year. We saw opportunities to move about 5% of our acetic acid mix downstream to either vinyl acetate or to emulsions. I think we mentioned in the prepared remarks, we're up over 15% year-over-year if you just look at our volume patterns downstream to those derivatives. We think that that's been a positive move that's allowed us to keep earnings up around $190 million all year, really since Q1 all the way through, and maintaining margins above 20% on an EBIT percentage of sales basis. That intentional shift to derivatives, we think, has been the right call from an acetyl perspective this year, as we saw better opportunities in those trading conditions.
Then as a follow-up, in Engineered Materials, 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, an average EV? So is content higher on the EV side?
I would say, 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. The opportunity for content is higher on EV. Frankly, EVs are still a very small % of the fleet. We're happy with the amount of content we currently have in EVs, but it's still a small %. ICE vehicles are still highly important to us now and for the next many years. The good news there is 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.
About two-thirds of that actually comes from our M&A, and that's why we did the M&A to acquire nylon and TPE, to have that opportunity to penetrate more in vehicles, about one-third from our legacy materials. Volume is a metric. We're also very important on what is the value of the materials we're putting in vehicles, because we want to be contributing high value, high margin, obviously, polymers into vehicles. We're looking at both. Again, all of the trends, light weighting, avoidance of paints because of emissions or odor, or durability, replacement of other plastics for functionality, these are all important trends, both in ICE and EV.
All right. Thank you.
Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.
Yes. Hi, good morning.
Morning, P.J.
Question on acetyl deals. Looks like you pushed more asset into China, and then in Western world, you diverted more volumes to VAM and emulsions. Is that a strategy sort of going forward? You had a similar strategy last quarter. What is the future of Singapore plant? You talked about rationalization in Asia. What's the future of Singapore plant, especially in light of the new capacity announced by BP? Thank you.
Thanks, P.J. Really our strategy in acetyl deals is to follow the money. If you look at second quarter, we actually pulled volume out of China into the Western Hemisphere, where acetic 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 a demand for volume. We actually moved more volume back into China. We moved volume out of Europe, where we saw a real softening in the third quarter. As we started to see softening in the Americas, moved volume out as well.
That is our business model, which is to have the flexibility and capability to move our molecules around between regions and between acetic acid and derivatives in order to maximize our returns. That's how we deliver pretty stable acetyl chain returns. As far as Singapore, we're still working through that. Obviously, 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 fuel oil could have an impact around that decision. We are still preserving our options in both cases until we see where the economics lead us.
Thank you. A question for Scott. Scott, you did a $275 million buyback. You're on pace to buy $1 billion worth of stock. It looks like the pertinent acquisitions aren't quite there. Can you give us an update on the overall M&A strategy? There is some talk about strategic split or an RMT transaction. Can you talk about that, and generally sort of the ongoing consolidation in the industry? Thank you.
Let me hit the buyback question first, P.J., then I'll let Lori comment broadly on M&A. We did $275 million in the quarter. That was at an average price around $113. We've done $775 million for the year at an average price between $105 and $106. That's kind of where we stood when we finished the quarter. Expect to finish at $1 billion, as I said earlier. We're going to be opportunistic with that cash flow. We are increasing CapEx. Organic investment is our priority for extra cash. We're taking CapEx up. We're going to finish around $400 million this year. We'll take that up to $500 million next year, possibly even a little more than that as we have attractive projects. That's always going to be our first choice. We look at bolt-on M&A.
In this environment, we have not seen people really being overly willing to sell in a more depressed economic environment. We've repurposed that cash towards buybacks, and we'll continue to do that opportunistically.
Yeah. A transformational M&A, 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 a discussion of transformational M&A. I think we've been very clear here, and Mark before me about we will continue to pursue whatever form of M&A is the most value added to the shareholder. Look, we regularly use advisors to help us evaluate options. It's an ongoing activity for us. That hasn't changed. 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 that.
It is still our opinion that to split the company as it is today really wouldn't add value to the shareholder because of the dis-synergies associated with the split. What we see is not much value uplift just from having a split short of some sort of other transformational activity.
Thank you.
Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question.
Yes, good morning. Just want to 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. Look, let me start with Saudi, with our Ibn Sina joint venture. We had indicated last quarter that we expected about a $10 million uplift from Ibn Sina this quarter versus second quarter coming out of the turnaround in Ibn Sina. We actually only got about $4 million. A couple things there. One is we had a little bit of residual turnaround expense that still hit the books in third quarter. The other thing is we had a GAAP tax rate adjustment that we booked this quarter.
We didn't get everything we wanted out of Ibn Sina this quarter. Also, if we move to the POM joint ventures, what I would say is, as we've really worked to move POM, and as we've seen challenges in POM pricing with the downturn in autos, our joint ventures have suffered as well, and maybe even more so than our own volume. We've not seen the returns from those joint ventures that we enjoyed, for example, say, in 2018. 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. In tow, with the shutdown of the Mexican plant happening this quarter, what's the impact of that on earnings? What should we see when we come out of that from kind of increased earnings on the backside? When will that hit? Will that hit squarely in Q1, or will we have to wait a little bit for that to flow through?
Ocotlán will shut down at the end of this month, as we had discussed earlier. There was about $100 million-$110 million of costs that came with that shutdown, $10 million for personnel and another nine to $5 million of non-cash items, so really accelerated depreciation and impairment. 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 million of productivity we needed to see to maintain flat earnings in acetate tow going forward. What I would say is, given that and the market dynamics, I would expect acetate tow going forward, so next year, to look very similar to it did this year, because these savings are all already baked into that.
Great. Thank you.
Our next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question.
Hey, guys. Good morning.
Morning.
I guess first off, back to the 2020 guidance, Lori. How would you have us think about quarterly phasing as we think about 2020? Related to that, how are you thinking about volumes at the low end of guidance? How would that shake out by the two core segments, EM and AC?
Yeah. Look, we haven't really looked at it by quarter, so I would assume quarterly volumes tend to follow what has been our historical patterns for quarterly earnings. I wouldn't think that's much different. We see some fourth quarter seasonality. We usually see some down in the first quarter for China. 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. Obviously, we see the full year impact of some of the expansion projects we've done, so that has some volume uptick in the Acetyl Chain. We should also start seeing some volume impacts, as well as some productivity impacts from some of the new projects we've done in EM, some of the new compounding lines that we've just completed in Nanjing and Suzhou.
Typically, we see increases in EM of mid to high single digits. Acetate, a little bit lower than that, a couple %. I wouldn't say that's 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. Then in terms of the de-stocking comments you made specific to EM and Europe, do you see that sort of phasing through as we enter 4Q, or do you still think that there's going to be some residual de-stocking specific to autos for fourth quarter in EM? Thanks so much.
Look, I really think, if we look at fourth quarter, what we're seeing is pretty typical of the seasonality we see. China, as an example, if we look at our order books in October versus July, China's up about 2%. That's pretty typical that we see China come up in the fourth quarter and have good demand in advance of Chinese New Year in the first quarter. On the other hand, the U.S. and Europe were flat to slightly down across the sectors, which again, is also fairly typical from a seasonal basis. I don't really see a lot more de-stocking occurring. Like we said, we saw it really in Europe as a result of the really severe decline in auto in the last quarter.
Every other signal is that we've really seen the de-stocking occur in all the other sectors. We don't expect de-stocking to occur in fourth quarter. Again, we will see some lower volumes outside of China associated with just seasonality, both in acetyls and EM.
Yeah, understood. Thanks so much, Lori.
Mm-hmm. Thanks.
Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.
Good morning. Could you flesh out in a little bit more detail your thinking about the longer-term optionality for acetate tow, or to what degree the degree of freedom there are more limited than you might have thought initially? Secondly, can you update your thinking about opportunities to pull forward productivity and working capital efficiency gains in 2020, 2021?
Yeah. Look, on acetate tow, I think, 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, that slowing down a little bit, especially in China, where in fact China, recently we've actually seen growth in cigarette demand. We do expect continuing volume and price declines in acetate tow. With the Ocotlán closure, with other productivity, we still see and expect that to be able to maintain flat, certainly through 2020.
Yeah. On productivity and working capital, Laurence, I think, a lot of the investments that we're making as we increase organic investment, a lot of those are tied to revenue generation, but it's also tied to productivity and working capital. 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. A lot of this is very consistent with the investments that we're making. We've aggressively been working capital now for a while. You've seen that reflected in the improvement of free cash flow. Productivity, 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 that are going to drive the earnings growth from 2019 to 2020? Because as we said earlier, we're just not expecting fundamental improvements in our end markets.
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 million capital expenditure budget for 2020. I guess two parts. Could you talk through how much of that is growth versus cost reduction projects and maintenance? More broadly, that's about double what the company was spending from 2014 through 2017. Should we think of 500 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?
Thanks, Kevin. It is about double. Let me characterize it for you. If I look at historically where we've spent, we spend roughly $200 million a year for EHS and what I call maintain margin projects. Reliability, re-lighting of equipment, things we need to do just to keep the current assets running and running consistent with good safety standards and meet environmental compliance. That's $200 million a year. We spend another $200 million a year at, like this year, $200 million a year in productivity and revenue generation projects. Things like the Clear Lake expansion, things like improving energy efficiency of boilers, things that give us a high quality, greater than 20% return. As we go up to $500 million, all of that growth is really in productivity and revenue generation. It's the Clear Lake expansion projects.
I would just say $200 is kind of our base level run and maintain capital, and then everything you see above $200 is really towards productivity and revenue generation. Just to put it in that perspective, our return on our total portfolio, including those non-return based projects, is greater than 20%. We still have great opportunity to invest in ourselves in value added projects that will be a great return for the shareholder. If I go past 2020, $500 million. If we go into 2021, 2023, we actually may see levels above $500 million as we look at our Chinese localization projects, building additional EM capacity in China, other productivity and revenue generation products around the globe. I would say kind of post that period of growth that we've outlined, we would return to the approximately less than $400 million level of ongoing capital.
Great. That's very helpful. 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 Clear Lake. Did you have other outages? What's your latest thinking on when the CO unit might restart at Clear Lake?
Let me address Singapore first. Singapore was a planned turnaround. The timing for the Singapore turnaround and the duration of the Singapore turnaround is tied to our CO producer's turnaround in Singapore. 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 accounts for the duration of the outage in Singapore. I would put that into the kind of normal operational bucket of events. Clear Lake was an unplanned downtime. We've been working through the impacts of that outage. As of today, methanol is back at full rate. Acid is restarting and really at partial rates, and will be at partial rates until we get the CO plant up.
VAM will be up before the end of the week, and we continue on our CO repairs, which will put us back at full rates sometime within the fourth quarter.
Fantastic. Thank you.
Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you. Good morning.
Good morning.
Lori, going back to BP's 1 million ton JV announcement, what do you think they're seeing in China that you're not, as you rationalize some of your capacity in that region?
I'll ask Todd to comment, but as 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. 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. We wouldn't actually expect any of that acetic acid to show up in the market. We expect that to be consumed in their own derivative based on our view. Todd may have more color on that.
Yeah, David, it's Todd. We're just studying the news and trying to understand it better. This was, at least as far as we can tell, an MOU announcement at this point. 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 project. As I said before, we're pleased that we're on track with our expansion in Clear Lake by 2022. We think we'll be first with its capability. I think Lori's right. I think this is largely an integration move upstream PX down through PTA and ultimately to polyester to service the Chinese localized demand for polyester in the region. We think it's largely an integrated announcement, it will have little effect on the merchant market.
Got it. Just lastly, on acetate tow, any potential for a price increase given perhaps tighter supply demand post the closing of your Mexico facility?
Yeah. We do believe in time, as we rationalize, others rationalize in the industry, that there will be potential for price increase. 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, we've seen price decline. It's about in balance at the moment. We certainly project going forward, while there 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.
Thank you.
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-synergies had kind of come down to around $50 million a year from your prior estimate of $100 million. Have you continued to make progress on bringing those down? If so, how would you characterize that now at this point?
Yeah. Look, 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 two companies. You have to have stand up two management teams. You have to have two back offices. There is always going to be a certain amount of dis-synergies associated with that. Maybe let me ask Scott if he has any more specific comments.
Yeah. You're right. That trajectory 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, et cetera. We have brought it down below 50, but I would say it's closer to 50 than it is to zero.
Great. Thanks. Just kind of understanding, when you think about China, what are some of the markers you're looking for to see that there is an improvement in primary demand or at least a stabilization? Would it be inventory levels or anything else that we should be watching? Thanks.
Yeah. Look, I think, as much as anything, we look at price volatility. We're anxious to get further past this national holiday to see if demand returns, prior to Chinese New Year. Obviously, the same factors affecting the rest of the globe, concern about tariff, concerns about global recession. These also impact China. We're just looking for, I think, the signs of sustainable demand lift to occur. Again, we saw an increase in Asia, in the third quarter in volumes and price. It's not greatly improving at the moment, but it's also not greatly declining. We see that as somewhat favorable. We need some sustainability in the response, which is probably what we haven't seen yet. Todd, anything you want to add?
No, I think that's probably enough. It feels we, just like Lori said, we look at order books on a daily, weekly basis. Supply, demand, utilization trends are critical as it affects the pricing environment. Raw materials, of course, be it methanol or olefins, MTO rates. Your point on inventory levels, I'm sure that's the same across the whole of the company, both finished good inventories on our customer side, particularly. All those classical markers are fundamentals that we 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 would you expect it to persist into the fourth quarter in 2020 as well?
You're exactly right, Matthew. 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, when we went back and asked to have that lifted, they were willing to do so, I think reflecting on our long relationship with them and their understanding of our business need. Since then, I think that's mostly been lifted for most of industry in the fourth quarter. Look, I expect it's going to continue from time to time in China. I would expect maybe it will happen again right before the Chinese New Year. That tends to be a pattern. I think it will happen again. Right now, we're not seeing that being an impact on fourth quarter.
The good news is we were able to ramp rates back up as needed following the Clear Lake incident. We worked with the team there and certainly with the local government and were allowed to run at full rates as we expected. That was helpful to cover, from a network perspective, a loss of the Clear Lake capacity. The only other thing to watch maybe late in the year is the winter season, heating season. Typically, depending on the energy profile and sources for energy production as well as industrial activity, there can be curtailment activity towards the late November, December timeframe, depending on various conditions. We'll watch that.
Sounds good. Thanks. Your EM project wins last year rose about 47%. You're on a similar pace this year, EM volumes are down about 5% this year. Could you just help me reconcile those two numbers? I guess that implies your base business is seeing some pretty significant volume declines. Is there anything changing in terms of the size or the profitability of the average project?
Look, I would say the size of the average project, if you talk about volume, is less than it was, and it reflects the fact that we're doing more projects and more different types of projects. I think it's also important to realize that these projects come in three buckets. You have some that are very long-term return projects. For example, in the medical field and some of the auto, some of these are projects that continue to pay out for 5+ years. Then you probably have another bucket that maybe you get one year from that, or maybe two years. Then you have a number of them that are actually very transactional. It's a project that moves volume, but it's a one-time move. Not all of these projects are things that pay out for five years.
What you see is while we can have up to 15% growth from EM projects in a year's timeframe, it could very well be that only 5% or something of those continue. Of course, you have attrition normally from other projects rolling off, as well as just other attrition. Project wins is an important metric for us because it just is how good are we generating materials. They are smaller this year because of the economic conditions. We are seeing more attrition in the base with slower GDP and slower demand around the world. That all comes into play. We still think it's important because this is what's allowing us to show the sequential quarter-on-quarter growth that we've shown in the last quarter, is continuing to deliver these projects.
As we referenced in our notes, we had a lot of great projects win this quarter. Now, not all that volume doesn't show up this quarter. It shows up. Many of those were long-term. We had some medical project wins. We had some auto project wins. We had some 5G project wins. A lot of those will show up over the next two to five 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. Turnarounds in 2020, we actually expect to be up about $50 million. Overall, we have a number of big turnarounds next year, including our joint venture methanol plant in Clear Lake, some of our POM units. These are big units that only come up for turnaround every three to four years. We do have a significant turnaround workload next year. 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. Regarding the General Motors labor union strike, how are you thinking about automotive shutdowns and whether the impact this year will be normal or above normal?
Yeah. 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. 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. 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 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 DeYoe with Bank of America Merrill Lynch. Please proceed with your question.
Thank you for squeezing me in. 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 million in losses you're taking this year on Clear Lake. Where are those $0.50 bucketing out, and then does that mean the net gains from productivity are less than 50?
Yeah. Well, no, the net gain, this is net gain, is $0.50. This actually, because of turnarounds and everything else, obviously requires a much higher level of productivity than that. This is net what we get of plus turnaround, plus productivity, et cetera, et cetera. Where does it come from? Ocotlán, as well as Lebanon, as well as other shutdowns that we've had, and footprint management and reduction, that goes into the productivity bucket. There's a bucket in there which is, we work very hard on energy and cost saving. In energy, like I said, boiler configurations, 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. Those, for example, go into productivity.
I'd say, those are the major buckets, as well as just normal optimization of maintenance bin, optimization of personnel. We've done a lot, which you've seen show up in terms of rightsizing our organization and reorganizing for the most productive organization. You've seen some of the severance costs associated with that. Those are all buckets within productivity. Doug, do you have any other perspective on it? Okay.
No, I think that hits it.
My last one, I guess price was down about 2% sequentially and year-over-year in EM. I think you'd mentioned POM as being one part of weakness, but what are the other primary markets responsible for the softness? Is this competition or deflation in raws? On the latter comment, where are you seeing the primary savings in EM as your spread to raws has improved?
Yeah. A good bit of it, I would say, is mix. In general, we've been able to hold our price in a declining raw material market. That has helped us. In a few of our materials, we've seen some mix impact, for example, less medical, more libs or less libs, more general DUROSET. There's a few areas where that's happened, but I'd say it's kind of more the mix this year, because in general, we've been able to hold pricing despite a decline in raw materials across EM.
I guess the better question is, how much did acquisitions contribute to EM volume growth on the quarter? Was that about 2% or something?
No. Volume growth on EM was up about 3%. I would say most all of that is organic. There wasn't a notable difference in terms of acquisition growth.
I was thinking year-over-year.
Obviously, all the acquisitions were the acquisitions which happened a while ago.
Yeah, I was just thinking year-over-year, that kind of squared up. Thank you.
Yeah.
Mr. Kyrish, I would now like to turn the floor back over to you for closing comments.
Thank you, Christine. Ria, we'd like to thank everybody for listening in today, and thank you to 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 for your participation.