Greetings and welcome to Celanese Corporation's second quarter 2019 earnings conference call. At this time, all participants are on a listen only mode. A 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 turn the conference over to your host, Chuck Kyrish. Thank you. You may begin.
Thank you, Bob. Welcome to the Celanese Corporation second 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 second 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 directly for your questions.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. We ask that you please ask one question and one follow-up question. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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. Our first question comes from David Begleiter with Deutsche Bank. Please proceed with your question.
Lori, just on your implied Q4 guidance, what's driving the expected improvement in Engineered Materials, and how much improvement do you expect in that segment in Q4?
Thanks, David. If we look towards second half through sort of the third quarter into fourth quarter, we do see indications that kind of the acute destocking that we've seen in first and second quarter is unlikely to continue. In acetyl, although inventories are high, really represents only a few weeks, and we see some indications that there's some movement there. On Engineered Materials, again, talking to some of our key customers, some of the folks in Tier 2s and tier 3s in the supply chain, especially into automotive and things. We see indications that stock levels have pulled down quite significantly in the first half, and we don't expect that to continue. We're not forecasting restocking. We're expecting to see demand going back to more normal levels.
We're suggesting that would have not as much seasonality than in fourth quarter because we've already seen the destocking occur this year. Just by way of evidence on that, if we look at our order book for July, it's already about 10% higher than it was in April at this time. That's really the basis for our outlook for the rest of the year.
That's very helpful. Just an update maybe on the M&A pipeline and the transformational transaction that was discussed at the last earnings call. Thank you.
We continue to look at all levels of M&A, David, both kind of small bolt-on acquisitions as well as the more transformational activity that Mark is busy looking at. On the bolt-ons, while we have still many prospects we're looking at, we haven't found any that are delivering at the value we would like it to complete this year, but that activity will come through. As I said, Mark continues to work on the transformational M&A. As we've told you all before, that will come when it comes and a little bit uncertain on that timing.
Thank you very much.
Our next question comes from Jeffrey Zekauskas with JPMorgan. Please proceed with your question.
Thanks very much. In your Engineered Materials business, your equity income was down in the second quarter year-over-year. You have some strong comparisons coming up. What's the trajectory of equity income? I know that there are timing issues having to do with oil prices.
Yeah. If we look at equity income year-over-year, we saw about a $27 million decline there. Actually, almost two-thirds of that, $16 million of it, was really due to affiliates. Of the affiliates, 10 was due to turnaround timing at Ibn Sina. Clearly, we expect that to reverse itself. We had some weakness in other affiliates in the second quarter and in the first half, as I think we described last quarter, specifically around our China affiliates that were more exposed to auto. We've seen some strengthening of that in second quarter. I think going forward, again, we'll see the reversing of that turnaround timing at Ibn Sina.
We are seeing some strengthening in our affiliate performance. The remainder of that, the additional $10 million year-on-year is just general market conditions, which, as I described to David's question, we do start to see some signs of starting to recover some of the demand as we go into the second half.
Is acetic acid pricing in China getting better sequentially, and might it make a difference to your returns in the third quarter?
Well, certainly if it gets better, it will make a difference to our returns in the third quarter. I think indications we've had in the last few weeks is we are starting to see some firming of pricing in acetic acid. Things move around though, whether that's sustained or not, I think is a question. Todd, do you have any comments you want to make around acetic acid pricing going forward?
Yeah, Jeff, the demand situation in China is probably the most important thing to watch. We saw demand come off by at least 10%, probably more than that for acetic acid, sequentially Q1 to Q2. That's an industry comment, not a Celanese comment. That's weighed on demand conditions, of course, and then therefore pricing conditions and pulled down utilization rates in the second quarter. We're watching it very closely. We've pivoted our business to derivatives, mainly vinyl acetate and emulsions and have grown that space by 9% sequentially on volumes, and that's lifted the overall Acetyl business by about 2% sequentially. To your point, we're watching China price. We're heavily involved, of course, in that part of the world, demand is the key thing to watch at this stage.
Great. Thank you so much.
Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question.
Hi, I was wondering if you could give us some breakdown of your CapEx. You talked about half a billion dollar in 2021. Can you give us those buckets in terms of maintenance or cost reduction activity and then growth spending and maybe some of the highlight projects that are in there?
Sure. Thanks, Bob. Let me just start with 2019. In 2019, we're approaching $400 million in CapEx. If you look at where that's being spent, about 50% of it is in EHS and what I call maintain margin projects. Turnaround, reliability-related projects, maintaining the equipment to basically maintain where we are. About 25% of it's in cost reduction projects. I think what's significant about that is that's about three times more than we've had in previous years, and that really reflects our continued focus on helping ourselves, if you will, through productivity by doing relatively minor investments though that yield large future cost savings. Then about 25% is in revenue generation.
As you go forward and you've seen that number getting closer to $500 million, all of that growth is really in revenue generation and/or productivity. It is projects like methanol expansion, it's projects like the VAM expansions we've done. We have some additional compounding lines starting up as we go forward, as well as some debottlenecking activity in various polymers in the U.S. and in Europe and in Asia, actually, in all three regions. The real growth is all in revenue generating activities, either volume and/or productivity, and in almost all cases, we can trade off productivity for volume.
Yeah, Bob, on a go forward basis, I think what I would bake in there on that is about $150 million of MOB type CapEx and the rest is exactly what Lori talked about from a cost reduction and rev gen standpoint. We look at the entire bucket of CapEx and the returns we generate on that entire bucket, inclusive of MOB at greater than 20% returns. That's what I would bake in on a go forward basis.
Hey, can I ask on the EM side, you guys had some pretty explosive growth there, four, six, eight quarters ago. It started to slow and then you were also battling maybe some raw material pressures and being more selective on your pricing. Well, this quarter it looked like both volume and price got dinged. I guess I could see the volume side, but can you talk a little more about what's going on in price and maybe how your pricing in EM correlates to what's happening in the raw material?
Yes. If we look at Engineered Materials, we do see, as we've talked about, we've seen the decline in auto demand, we've seen the decline in electronics demand. Clearly in some areas, especially nylon, for example, and elastomers, which has been heavily challenged by those declines. We have seen a lot of competitors in the market driving price down, and we've seen a lot of pricing being done to compete for volume. We haven't followed that all the way down, and obviously that's why our volumes are somewhat off in those areas. We have seen some pricing pressure, especially in those areas and especially as it applies to automotive. What I would say there is nylon and elastomers are heavily impacted by the M&A we had over the last two or three years.
That's also the year-on-year and quarter-on-quarter we haven't had any significant M&A in the last year. That is a change from, say, the past several years. What we see with our affiliates is why we're happy overall with their financial performance. A lot of the volumes that came in with our acquisitions were not as differentiated as our base portfolio, not generated using the same project model, and therefore not as sticky as some of our base portfolio. As we've gotten into this more challenging economic backdrop, we've seen some of those volumes not be as resilient as our base portfolio. Over time, we expect that to change as we are developing those volumes consistent with our business model. We have seen those influences come together in this quarter.
Helpful. Thank you.
Thanks.
Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.
Thank you, good morning. Just a question around your capacity in acetyls in Asia. There were some reports during the quarter that you were taking your own utilization rates down. Could you discuss that a little bit and then help us understand where rates are now in the third quarter and where you expect them to be?
Maybe I'll start and ask Todd to weigh in more specifically. In general, in acetic acid in China, we are seeing a demand decline of more than 10% in the second quarter, and that put China capacity utilizations around 70%. That's versus if you go back, say, a year ago, that was well into the mid-80s or even a little bit higher. For certain, utilization is significantly down in China in general. Our own capacity, I'll let Todd comment on that, but I will say, we did see some other producers in China take units down entirely and take capacity back in response to that, as that combined with historically low level pricings made it unaffordable for folks to run. Maybe, Todd, you have a few comments on operations.
Thanks, Vincent. Thanks, Lori. Vincent, we flex our asset yields network on a daily basis. This is what we do every day and every week and every month, try to get the maximum value we can in each of the products. We did a great deal of that in Q2. Our activations were up 30% sequentially, and this is our measurement of really actions and decisions that we take to flex our network in the best way. Remember, we had a couple of turnarounds in the system in Q2. We had a vinyl acetate turnaround in Bay City, as well as in Nanjing. That kept VAM rates lower in those two units. Acetic acid-wise, if you look out a little bit, we do have the first part of a turnaround in Singapore toward the end of this quarter, Q3, and then mainly into Q4.
Without giving specific rates by unit, I think the key takeaway is our flexibility, our ability to pivot, whether acetic acid or derivatives, is really the differentiation that we would point to. We intentionally moved +5% of our acetic acid tonnage downstream to our derivatives. We shifted to VAM, shifted to emulsions 5% sequentially. That allowed us to grow VAM and emulsions by 9% volumetrically from Q1 to Q2, therefore lifting the overall chain by 2% sequentially. Those options and choices are what we would point to, and really the end result is profitability at $189 million. If you take out the turnarounds that I mentioned before, which were about $15 million of headwind in the quarter, puts us about that $200 million run rate for the business on a quarterly basis while keeping EBIT margins above 20%.
Okay. That's helpful. If I could just ask in EM, on the volume side of the equation, you called out a couple of things that a little more color would be helpful. One, it sounded like in the first quarter there was an inventory build from some of the healthcare customers. If you could just help us understand how that volume does swing around from quarter to quarter. It seemed like in the first quarter, volume was strong, if I go back and look at the comments from then. How does that work that their volume shifts around? Then secondly, I think there was a comment that volume was also hurt by a mix effect, if you could just help us understand what that is. Thank you.
Thanks, Vincent. Actually, those are really the same thing. It continues to be a very strong sector for us, but it is a very relatively small volume sector with very high margins. Actually, small swings in volume can have a very big impact on our earnings. What we saw in the first quarter is we did see customers particularly in the U.K., building volume in anticipation of a Brexit move, worrying about tariffs and availability and everything else relative to Brexit. Clearly, that didn't happen. Again, it's not a huge volume, but it swings a good bit of the margin.
If you look at our EM kind of quarter to quarter, first quarter to second quarter, of what we say is the volumetric impact, of that volumetric impact, 7% total volumetric impact, 4% of that was actual EM volume, 3% was just the mix with most of that being medical. Just the fact that medical volumes got moved into the first quarter from second quarter. We see this from time to time. It was particularly big first and second quarter, but medical tends to be a bit lumpy. We get a big order once we hit FDA approval, and people will stock up as they prepare for run, and then go down. It tends to be a bit lumpier maybe than some of our other business, but we did see the first and second quarter primarily because of the Brexit impact.
Okay. Thank you very much.
Our next question comes from Mike Sison with KeyBank. Please proceed with your question.
Hey, nice quarter there. In terms of the Acetyl Chain, I'm just curious, you guys, as you've talked about, do a good job pivoting upstream, downstream, geographically. If you think about the second half of the year, where do you think you're going to need to pivot to make your earnings outlook for the year? Maybe it's hard to say, but just any, are you going to stay downstream? That type of thought.
Thanks, Mike. On the Acetyl Chain, quite frankly, we're quite pleased with where we are. Continuing to turn in seven consecutive quarters above 20%. I think the second quarter is really just a good example of the strength of the model in the Acetyl Chain and the ability of our organization to continuously do activations as Todd just described, promote value at wherever it exists, but beyond the chain. I think an interesting point, and maybe a bit to your question, if you look at the very low pricing we're seeing in acetyls in China, less than $400 a ton. The last time we saw this level of pricing was back in first quarter of 2017. If you look at the earnings in first quarter 2017 for acetyls, it was $109 million. You compare that to the second quarter now at $189 million.
We've had an $80 million uplift in the value of the Acetyl Chain in basically the same economic condition based on the strength of the model and the folks deploying it and the focus on productivity and all of the other steps. Put another way, margin on Acetyl went from 14% in first quarter 2017 to now 22% in second quarter 2019. I think that really speaks to the strength of the Acetyl Chain. Really to achieve that $10.50 view for the year, it's really just continuing to activate that model and continuing to deliver on that 200 level quarter- on- quarter. Obviously, if we were to get, for whatever reason, a good run-up in the price of acetic acid in China in particular, that would just be more on top of that.
Got it. As a quick follow-up, in terms of EPS, you did about $5 in the first half and adjusted EBIT about close to $800. You look at the second half, you need a little bit more obviously in EPS by $50. Does your adjusted EBIT have to go up a lot in the second half to do better? Is it maybe just a thought on how the second half adjusted EBIT looks relative to the first half?
Again, we are assuming some improvement in market conditions based on my earlier comments. Obviously, EBIT will go with that. Clearly also on an EPS basis, we're helped by the share buybacks that we've had in the first half of this year as well as last year. Let me turn it over to Scott to maybe give a more complete answer.
Yeah, I think that's really the point. I think we do need a slight improvement in the adjusted EBIT, and I think Lori talked earlier about how we expect that given the de-stocking we saw in the first half, that we believe the second half can be better. Order books starting out in July are a little better than what we saw particularly in the second quarter. Just what we saw in the first half of this year, we're currently not baking in the same level of Q4 seasonality. When you take all those things into consideration, you should have slightly a better adjusted EBIT in the second half, plus the benefit of the buybacks we did in the first half and what we expect to do in the second.
Got it. Thank you.
Our next question comes from John Roberts with UBS. Please proceed with your question.
Thank you. Methanex is going forward with its third unit in Geismar. Todd, could you give us an update on the Clear Lake methanol expansions that you're doing with Mitsui?
Yeah, thanks, John. As we announced last quarter, our plan is to take that unit up to 1.7 million tons. That would be operational sometime in 2022. We're pleased with the output of that unit that continues to contribute value as it's running above the original design capacity. We're on track again to raise that up by about 150,000 tons. That would be shared with our partner and again on track towards 1.7 by 2022. We'll update that specific timing as we work through the progress. We did receive the requisite permit from Texas to proceed down the path there.
Okay. Lori or Scott, in the Engineered Materials business, could you share with us how much the automotive business was actually down during the second quarter? Was it down double digit percent?
If you look at actual automotive builds, we actually saw about a 3% drop. Most of that coming entirely out of Asia. U.S. was actually up a little bit on the strength of trucks, but EU was down. Of course, builds is interesting, but what really matters to us is what the demand for product is. In our discussion with the Tier 2 and 3 suppliers to auto in all regions, we were hearing from some of our key customers and distributors declines of 20%-30% on volume. Clearly, an indication to us that de-stocking was continuing into the second quarter.
Were you down in line with those Tier 2 discussions that you had?
No. Our EM volume on an actual volume was down about 4% in total for EM.
Okay.
Yeah. John, the auto piece of that was just maybe about a percentage point higher than that.
Okay, good. Thank you.
Yep.
Our next question comes from P.J. Juvekar with Citi. Please proceed with your question.
Yes. Hi, good morning. Lori, as the center of gravity for acetyl shifts to the U.S., and at the same time for EM, the focus of growth seems to be China, does that mean that there will be less integration between the two businesses going forward?
It's an interesting question, P.J. I don't think there's less integration going forward. We have raw materials available in China. There's plenty of acetic acid producers. It just may mean that less of our own material is going into EM in China, but we continue to have a growing EM business in the U.S. I don't see it having a significant change in terms of the amount of integration between the two businesses.
Okay. Thank you. As acetic acid prices dropped, you nicely pivoted to VAM and emulsions, and so that's a great tactical move from your team. When do competitors catch up with that move? Are they not that flexible? Because I would imagine that these are big, large companies that are global, and they should be able to do the same thing.
Yeah. The interesting thing is, I think there aren't any competitors who can do the same thing. That's the beauty of our integrated model. There's a lot of competitors who make acetic acid. There are competitors who make VAM, and there are competitors who make emulsions. There's not many who make all three from the start of the value chain at CO and methanol all the way through emulsion. That's really where our model is, I think, differentiated from others and is strong and allows us to give less volatile results and this level of earnings is because we are fully integrated through the chain and fully integrated geographically, which not all of our competitors are.
We have the ability, as we did this quarter, to reduce our exposure to Asia and increase our sales into the Western Hemisphere, where available margins were higher for VAM and emulsion.
Thank you.
Our next question comes from Duffy Fischer with Barclays Bank. Please proceed with your question.
Yes, good morning. A question around Lori's comment that you're $80 million a quarter better now in this kind of a tough acetic or Acetyl market than you were in Q1 of 2017. It would strike me that that's got to be one of three factors, either better realized price versus the posted price, better cost, or you're selling more volume into the market. Can you break it down into those three buckets, that $80 million? Where does the majority of it come from, and how much do you think is structural versus maybe just some transitory fortunate business?
Duffy, look, we work very hard for these results. What I would tell you is I don't have the exact breakdown in front of me. It's a little bit of all of it, but it really is the ability to flex our model and make choices about where we take value out of the chain. It's certainly price, and the price we're realizing for VAM and emulsions, if you will, versus acetic acid. I think the point is, it is the strength of the value chain, the strength of the geographic model, and the talent of our folks, if you will, to be able to constantly flex and make decisions every day about where to extract value in that chain. Which makes us confident that we can continue to deliver these results even in periods of low margin environment like we've seen in the second quarter.
Yeah. Duffy, I could add, remember, we've added integration with methanol. We've added integration more recently with carbon monoxide. We expanded our vinyl acetate unit in Clear Lake by 150,000 ton. We've achieved more options, frankly, with this global network that Lori just outlined. It's really the combination of that and the real-time use of data which provides us insight to make these calls, these activations to affect these decisions that contribute to the results. We believe it repeatable, and we're going to look to add additional value steps going forward. John asked a question about the methanol expansion. There's other value addition steps that we're pursuing and look to layer those on top to keep us balanced.
Yeah. Thanks, Todd. I think we shouldn't ignore productivity. For Celanese, we are delivering about $100 million a year in productivity steps. Again, roughly kind of 50/50. Certainly doing that year- on- year- on year is making us more competitive as well, lowering our overall cost base.
Great. Does the market believe that the coal gasification explosion at Yima is going to be a big deal for the acetic acid and the acetyl market in China?
Duffy, I think it's too early to get into that. It's a terrible thing. Many lives lost and multiple injuries. There in Henan Province, there's something like 11% of domestic Chinese capacity in that province. From a country perspective, that province is a big producer. This particular unit was only 200,000 tons. Call it 2% or so of the domestic capacity. We're watching that. It remains to be seen what the province does across the other units there in Henan and what other steps they take to curtail operations there. We're focused on what we can do with our customers to keep our efforts and business connected and ultimately, work to Q3.
Terrific. Thank you, guys.
Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.
Good morning. Two quick ones. First, on the uptick in the order book that you've seen recently, can you give a sense for how broad-based is it, or if there's any particular regions that are stronger than others in terms of the pace of improvement? Secondly, on productivity and turnarounds, is there any lumpiness that we should be thinking about for 2020 and 2021 in terms of timing of outages going forward?
Yeah. On the order book, we're seeing it fairly broadly. I would say because of the declines we saw in second quarter, it's probably more noticeable in some of those grades, nylon, elastomers that I talked about, seeing good recovery in POM, good recovery in LCP into electronics. I'd say it's pretty broad across the different grades that we make in the order book, and then also pretty spread between the regions at this point.
Yeah. On turnarounds, Laurence, we're doing that work right now on kind of planning that up across the corporation as we do turnaround planning, we'll provide more insight into that probably in October.
Thank you.
Our next question comes from Ghansham Panjabi with Robert W. Baird. Please proceed with your question.
Thank you. Good morning. Lori, congrats again on your new role.
Thank you.
I guess going back to your EPS guidance reiteration for 2019, and sort of the embedded expectation for improved demand fundamentals as per your comments in the press release, are you basically assuming that the inventory destocking that pressured the first half is now behind you, or are you assuming any sort of acceleration in end market volumes, including in the EM segment?
Yeah. That assumption is we are assuming that destocking is pretty much behind us. Now, we're not assuming any restocking, if you will. We're really assuming a return to normal demand in the third and fourth quarter, and some assumption around not seeing the amount of seasonality in fourth quarter we usually see for destocking because we believe the destocking's already occurred.
Okay, that's helpful. Just in terms of some of the supply chains for markets such as electronics perhaps moving away from China into other parts of the world, including Southeast Asia, at least directionally, how are you sort of balancing your focus on expanding your EM footprint in China, which you called out in your prepared comments, versus some of the other regions across Southeast Asia more broadly? Thank you.
We are very focused on expanding our China and not just our sales. I think if you go back historically, most of our EM business in China really started with following big auto, if you will, into China, and people that we supplied in other regions of the world, whether it be Europe or the U.S., basically supplying the same materials into China. It was very much on exporting material from the U.S., exporting from Europe into China. If you look at it, the large percentage of our EM materials, in fact, quite the majority, are not just produced, but also compounded outside of Asia and then imported into Asia and into China. That worked when we were doing a lot of auto and things that had long lead times and things that had pretty long life.
If you look at our business now, and especially as you go into consumer and electronics and things that maybe change every six months to a year, it's just not a supply chain that can meet our customer demands to get products more quickly, development more quickly. We already have a couple projects going in this year to add compounding lines in China. Our future capital program over the next few years is focusing on adding poly as well as additional compounding in China, really to shorten the supply chain to meet the needs of our current customers in China and the rest of Asia.
Thank you.
Thank you.
Our next question comes from John McNulty with BMO Capital Markets. Please proceed with your question.
Yeah, good morning. Thanks for taking my question. Lori, in your prepared remarks, you had highlighted the ability to accelerate some of the actions around cost-cutting. Can you quantify or give us the magnitude as to what you can pull forward to 2019 this year?
Yeah. We pulled forward about $60 million, let's call it, of capital projects, capital spend. To give you an example, these are things like retrofitting and refurbishing natural gas boilers to get better energy efficiency at plants. These are things that we won't necessarily see the payout this year, but we'll see the payout next year and the years that follow. To give you an idea on productivity, the combination of capital projects and other productivity, where we had been doing a run rate of about $100 million a year on productivity, that number for this year will be between $150 million-$200 million. We've been able to pull in, call it $50 million-$100 million on a full year basis now. Obviously, not all was implemented January 1st, so we won't get all of it this year, call it $50 million-$100 million.
Got it. That's helpful. Then with regard to EM, I guess how much or what percent roughly of your products can be kind of swapped out quickly if there's competition around pricing? Because it does sound like that may have been a little bit of an issue. Then how much of it's really kind of specced in and is really tough to displace around random price cuts or lapses in discipline?
Yeah, I'm not sure I know the exact numbers. I'll ask Scott to back me up here, but right now I would say it's roughly a third of it's really very sticky. Very hard. A third of it is specced in, but probably others are either already specced in or could be. A third of it is more what I'll call me-too kind of product, which is easier for people to come in and out of based on price.
Yeah, I think that's exactly right, John. About a third of the business is a little bit more transactional. It's still an engineered solution. It's not something that changes from one day to the next. It can be switched out. The reality of it too is, we can also switch out between polymer banks. That's an opportunity for us as well, depending on where various raw materials are, and given the breadth of our portfolio now, and the fact that we have over 20 different polymer families that we can go into, it just gives us a lot more flexibility in this market, depending on where raw materials are in the more transactional spaces. It continues to be important for us as we build a project pipeline and really start to try to put more focus on that specced-in, sticky business that Lori talked about.
Great. Thanks very much for the color.
Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Good morning. A question on the acetyls industry. As we look at some of the trends, it seems to us that there's a relatively large number of outages across the industry in recent months, recent quarters. My question is, do you agree with that? If so, do you have a sense for how much or how many of these outages are maintenance related among your competitors versus caused by economic reasons, with market prices sinking? Do you see competitors throttling back simply because they go cash negative, for example?
Yeah. Thanks, Kevin. It's always a little bit hard to say, but let me ask Todd to follow up my comment. We know in China that some capacity has been intentionally shut down due to the combination of demand and pricing. Second quarter is traditionally a fairly heavy turnaround quarter as well. Certainly in the U.S. and in Asia, we see some taken out. Now, having run operations for 35 years, I can tell you, people make a lot of decisions around extending maintenance outages and doing them at a slower pace and things when economics are like they are now. It's why it's always a little bit unclear about how much is economic versus how much is maintenance. Certainly we've seen both. Todd, you may have more specifics you can provide.
Yeah, Kevin, it's a good question. To Lori's point, it's hard to know the exact figure, but if we were to try and track utilization rates with that demand drop sequentially by over 10% in acetic acid Q1 to Q2, we believe that would have pulled utilization rates down on a global basis to just under 80%, so call it around 79%, with China actually dipping under 70% utilization rate. On the heels of that, to your question, to your point, we do believe intentional curtailment occurred late in Q2. We would call our run rate typically around 300,000 tons of sort of normal outages. We think that might have doubled. If you ramp it up and factor all that in, it's, again, hard to be absolutely precise here, but there had to have been some intentional action.
We certainly do our part with our own network, and that's what we do to take care of our customers and also to maximize value for our shareholders all the time. There were some curtailments indeed, and as we go into Q3, that's important to track and watch and really sets the tone for improvement as we go into the second half of the year. Demand is critically important. We've got to focus on demand conditions and starting to see that industrial space, particularly in China, starting to recover, and that will help a lot, really all of our businesses.
That's very helpful. As a follow-up, again, sticking with acetyls, what are your latest thoughts on rationalization of Celanese's capacity in Asia? Do you need to get through IMO 2020 and really see how the fuel markets react in Singapore?
No, that's exactly right. We've announced our intention to do an acetic acid reconfiguration. We are still progressing with that project, but ultimately the decision, it is based on productivity by the way. It is based on utilizing lower raw material costs in the U.S. Gulf Coast and taking capacity out of Asia. That decision of where to take capacity out of Asia will depend on exactly what you said. Where do we end up with bunker fuel pricing? What does that mean for Singapore capacity? Where does coal pricing go? What does that mean for Nanjing margins? We'll make that decision at that time based upon where we are on both of those.
Thank you very much.
Our next question comes from Arun Viswanathan from RBC Capital Markets. Please proceed with your question.
Great. Thanks. Good morning. I just wanted to go back to the guidance for both Q3 and Q4. I guess that looking at Q3 is between Q1 and Q2 would put it maybe at $2.50, and then your statement is you see a path to the $10.50, so that would imply maybe around $3. I just wanted to understand that path a little bit more. I guess the mechanics would be both Acetyls and EM going up and margins and price and volume. Where do you see the greatest confidence in that path? Is it in EM or Acetyls, and where do you see the risk factors as well? Thanks.
As I think was said, we really feel confident in our ability to continue to deliver acetyls in the 200 range. Clearly, if we see firming in acetic acid pricing, as we've had some indications if that's sustained, that could be further upside for acetyl. For all the reasons we discussed earlier around de-stocking, et cetera, we expect to see recovery in Engineered Materials as we go forward through the end of the year. Then, of course, since we're talking earnings per share, we also have the impact of the share buyback and seeing kind of the full year impact of that on the numbers.
Okay, thanks. Do you also expect to update your longer-term targets that you provided last year for 2018 through 2020 at some point? Thanks.
Arun, we're working now through a strategy refresh. We'll be working through that through the end of the year. Clearly, part of that will be to look at 2020 again and kind of re-look at our view for 2020. Hopefully in the October timeframe, we'll have that certainly as we work through the strategy into the end of the year, we'll have a view on 2020.
Okay, thanks.
As well as the out years beyond that. Yeah.
Our next question comes from Aleksey Yefremov with Nomura. Please proceed with your question.
Thank you. Good morning. In Engineered Materials, how should we think about your margin sustainability? Was the level of margins for wholly owned business in the first half representative of what you could see in the second half?
Look, I think for all the reasons we described, I think we expect second half to be stronger for Engineered Materials than it was for first half. I think certainly for our acquired businesses, we expect further strengthening in those business models and the delivery against the model for those going forward, as well as the general improvement we see in market conditions with not anticipating further de-stocking. I think for our own in control businesses as well as for our affiliates, but especially for our own businesses, we expect a stronger second half than first half.
Yeah. Aleksey, just typically, volumes are strongest in Asia in Q4. Margins are a little bit lower there versus the Western Hemisphere, just with Chinese New Year in Q1 kind of moving into that timeframe. Typically our Q4 margins are a little bit lower, so that would be something just to keep in mind as well.
Great. Thank you. As a follow-up, you guided third quarter somewhere between first and second quarter. Should we think about that guidance as sort of the midpoint, or are you kind of closer to the first quarter level or the second quarter level in your thinking about 3Q?
Aleksey, I think we're still fairly early as we start the quarter. I think it's going to really be how demand materializes. I think there's been some pretty public announcements from some of the, for example, automakers taking summer shutdowns. We do expect to kind of more or less see de-stocking coming to an end as we talked about. It's in that range, and as we work our way through the quarter, we'll have a better idea on where we finish, but it's somewhere in that range.
Thanks a lot.
Our next question comes from Jim Sheehan with SunTrust Robinson . Please proceed with your question.
Share buybacks were pretty robust in the quarter. Are you still targeting around a 7% share count reduction for the year? It does seem like you're on track to do even more, possibly.
Yeah, Jim, we've been very open about the fact we're going to be opportunistic with share buyback. We expect this year to be in the range of where we were in 2018. We did $800 million in 2018, and we expect to be in that general range. With finishing the first half at $500 million, in the last 12 months, we've bought back about 9% of the outstanding shares.
Thank you. On the full year outlook, $10.50, you're assuming an acceleration of sorts in the fourth quarter. If you don't see that uptick, what kind of downside do you see for full year 2019?
Yeah. If we were to see market conditions continue similar to the first half, then we would expect our earnings per share to be down 3%-5%.
Thank you.
Rob, we'll make the next question our final question.
Our last question comes from Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.
Hey, good morning. Thanks for taking the questions. Could you talk about how the month of June performed relative to the entire second quarter for both Acetyl Chain and Engineered Materials? It kind of sounds like maybe June was the strongest month of the quarter in EM, but potentially one of the weakest months in Acetyl Chain. Is that the right way to think about it?
Yeah. Let me talk about EM. Typically, the last month of the quarter is the strongest quarter for EM. That's just typical, so just the way people run their businesses. Definitely, I think June was actually probably not our strongest month in the second quarter, but it was a good quarter for us in June. Interestingly enough, we actually saw an increase in auto in China in June. The first increase in sales, in terms of auto sales, that's occurred since May of last year in China. We don't necessarily think that's sustainable because it was based on some very heavy discounting going on in China to move vehicles that won't meet the new air emission standards that are going into place. June was a bit of an interesting month, so some areas of strength, some areas of weakness.
I'd say for EM, a good month, but not atypical for the end of the quarter. I think in acetyl, I don't know that it was significantly different. I can ask Todd to comment. I don't actually think it was particularly strong or weak as comparison to the rest of the quarter. Todd, do you have anything?
No, that's good. I think that's right, Lori. The middle of month was probably the lowest of the three, but not to your point, pretty balanced overall.
Great, thanks. Todd, could you talk about the Chinese VAM market so far in Q3? It looks like pricing might have come off quite a bit already this quarter. There's been some reports of economic run cuts from some of the major producers, including Celanese. Do you have any more color there?
Again, similar to the comments from before with respect to our operational activity. We will flex our units as we see the match with customer needs, customer demand, costs, profitability. We'll do that in all units around the world. That flexibility is important for us. I would not characterize VAM China as declining at this point. I think it's been fairly healthy as we go Q2 to Q3. More to come, and certainly we've got to watch the development over the course of the quarter. No, I think that was a little too severe of a characterization in terms of the Q-to-Q drop. We're working hard to deliver the quarter in Q3 as we outlined before. The one thing we do have to navigate through, we do have a turnaround in Q3 in Frankfurt on VAM.
We've got probably a $10 million headwind there that we've got to work around. That's probably the one thing from an operational perspective we've got to work through.
Thank you very much.
Thank you.
Ladies and gentlemen, we've reached the end of the question-and-answer session. At this time, I'd like to turn the call back to Chuck Kyrish for closing comments.
Thanks, Rob. Certainly would like to thank everyone for listening in today and the good questions. As usual, we're around after the call to address other questions that you have and Rob, with that, you can close us out.
Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.