Earnings Call: Q2 2019

Jul 23, 2019

Greetings, and welcome to Celanese Corporation Second Quarter 2019 Earnings Conference Call. This time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Chuck Convers. Thank you. You may begin. Thank you, Rob. Welcome to the Celanese Corporation Second Quarter 2019 Earnings Conference Call. My name is Chuck Kyris, Vice President of Investor Relations And Treasurer. With me today are Lori Ryar Kirk, Chief Executive Officer. Scott Richardson, Chief Financial Officer and Todd Elliott, Senior Vice President at the Field Chain. Stone's Corporation Distributed 2nd quarter earnings release via business wire and posted prepared remarks about the quarter on our Investor Relations website yesterday aftermarket 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 that 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 At this time, we'll be conducting a question session. Our first question comes from David Begleiter, David Begleiter with Deutsche Bank. Please proceed with your question. Laurie, just on your implied Q4 guidance, what's driving the expected improvement in Engineered Materials? And how much of improvements do you expect in that segment in that in Q4? Thanks, David. If we look towards 2nd half through the 3rd quarter into 4th quarter, We do see indications that kind of the acute destocking that we've seen in First And Second Quarter is unlikely to continue. And acetyls 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 twos and tier threes and the supply chain, especially into automotive and things. You know, we see indications that with stock levels have pulled down quite significantly in the first half and we don't expect that to continue. So we're not forecasting restocking, expecting to see demand going back to more normal levels, and we're suggesting that would have not seasonality then in fourth quarter because we've already seen the destocking occur this year. Just, by way of 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. So that's really the basis for our outlook for the rest of the year. And just an update maybe on the M and A pipeline and the, the transformational transaction that was discussed at the last earnings call. Thank you. So, we continue to look at all levels of M And 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 better delivering at the value we would like yet to complete this year, but that activity will come through. And as I said, Mark continues to work on the transformational M and A. But as we've told you all before, that, that will come when it comes and a little bit uncertain on that timing. Our next question comes from Jeff Secaucus with JP Morgan. 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. And 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. Yes. So if we look at equity income, year over year. We saw about a $27,000,000 decline there. Actually, almost 2 thirds of that $15,000,000 of it was really due to affiliates. And of the affiliates, $10,000,000 was due to turnaround timing at Ivantina. So clearly, we expect that to reverse itself. We had some weakness in other affiliates in the first, in 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 to that in second quarter. So I think going forward, again, we'll see the reversing of that turnaround timing that you haven't seen us. We are seeing some strengthening in our affiliate performance. And then the remainder of that kind of the additional $10,000,000 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 3rd quarter? Well, I'm certainly, if it gets better, it'll make a difference to our returns in the 3rd quarter. I think indications we've had in the last few weeks is we are starting to see some birming of pricing in the seedy acid. You know, things move around those or whether that's sustained or not, I think is a question. I Todd, do you want do you have any comments you want to make around the seedy gas pricing going forward? Yes, Geoff. 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, a Q1 to Q2. That's an industry comment Melanie's comment, but that's weighed on, demand conditions, of course, and then therefore, pricing conditions and pull down utilization rates in the second quarter. We're watching it very closely. We've pivoted our business to derivatives, mainly vinyl paid in emulsions and have grown that space by 9% sequentially on volumes and that slipped to the overall acetyl business by about 2%. Sequentially. But to your point, we're watching China price. We're heavily involved, of course, in that, in that part of the world. And 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 $500,000,000 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. So if we look at where we are in, let me just start with 'nineteen, you know, so in 'nineteen, we're approaching $400,000,000 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. So turnaround reliability related projects, maintaining the equipment to basically maintain where we are, about 25% of it in cost reduction projects. And, 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, so that yields far future cost savings. And then about 25% is in revenue generation. Now, as you go forward and you've seen that number getting closer to 500,000,000, All of that growth is really in revenue generation. So it really is and our productivity. So it is projects like methanol expansion. It's projects like the VAM expansions we've done. We have additional compounding lines starting up as we go forward as well as some debottlenecking activity in various polymers in the U. S. And in, and in Europe and in Asia, actually, in all three regions. So 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. Yes, Bob. I think on a go forward basis, I think what, I would bake in there on that is about $150,000,000 of MOB type, CapEx and the rest is exactly what Lori talked about from a cost reduction and rev gen standpoint. But we look at the entire bucket of CapEx and the returns we generate on that entire bucket, inclusive of MOB at 20% greater than 20% returns. So, that's kind of what I would bake in on a go forward basis. Can I ask on the EM side? You guys had some pretty explosive growth there. 4, 6 to 8 quarters ago, it started to slow. And then you're also battling maybe more 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 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. So 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. Now we haven't followed that all the way down and obviously that's why our volumes are are somewhat off in those areas. But we have seen some pricing pressure, especially in those areas and especially as it applies to, to automotive. What I would say there is, you know, nylon and elastomers are heavily impacted by the M and A we had over the last 2 or 3 years. So also kind of a year on year quarter on quarter. We're not we haven't had any significant M and A in the last year. So that, that is a change from, say, the past several years. And what we see with our affiliates is why we're happy overall with our financial performance A lot of the volumes that came in with, sorry, not with our affiliates, both our acquisitions, 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. So 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. But we have seen those influences come together in this quarter. That's helpful. Thank you. Thanks. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question. Thank you and good morning. Just a question around your capacity in Ace sales in Asia. There were reports during the quarter that you were taking your own utilization rates down. So 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? Yes. So maybe I'll start and ask Todd to weigh in more specifically. I mean, in generally, in a city asset in China, we are seeing demand, a demand decline of more than 10%. In the second quarter. And that put China capacity utilizations around 70% and that's versus if you go back say, a year ago, that was well into the mid-80s or even a little bit higher. So for certain utilization is significantly down in China. In general. You know, our own capacity, you know, I'll let Todd come on on But I will say, we did see some other producers in China take bought take units down entirely and take capacity back in response to that as that combined with kind of historically low level of pricing made it unaffordable for for folks to run. Maybe Tayvio could comment on that operation? Yes, sure. Thanks. Yes, thanks, Vincent. Thanks, Laurie. You know, Vince, we flex our asset yields network on a daily basis. I mean, this is what we do every day and every week and every month. Try to get the maximum value we can in each to the products. And we did a great deal of that in, in Q2. Our activations were up 30% sequentially, and this is our measurement of really actions and decisions that we take to, to flex our network in the best way. So Remember, we had a couple of turnarounds in the system in Q2. We had a vinyl acetate turnaround in base city, as well as in Nanjing. So that, that Cape kept van rates lower in those two units. The steaming acid wise, if you look out a little bit, we do have turnarounds, the first part of a turnaround in Singapore toward the end of this quarter, Q3 and then mainly into Q4. So 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. So we intentionally moved +5 percent of our acetic acid tonnage downstream to our derivatives. So we shifted to VAM, shifted to emulsions, 5% sequentially That allows us to grow abandoned emulsions by 9% volumetrically from Q1 to Q2. And then therefore lifting the overall chain by 2% sequentially. So those choices, those options and choices are what we would point to. And really the end result is profitability of $189,000,000, which you take out the turnarounds that I mentioned before, which were about $50,000,000 of headwind in the quarter, but it's just about that $200,000,000 run rate for the business on a quarterly basis while keeping EBIT margins above 20%. Okay, that's helpful. If I could just ask EM on the volume side of the equation. You called out a couple of things that a little more color would be helpful. 1, it sounded like in the first quarter there was an inventory built from some of the the health care customers. Can you just kind of 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 them. So how does that work that their volume shifts around? And then secondly, I think there was a comment that volume was also hurt by effect, if you could just help us understand what that is. Thank you. Thanks Vincent. And actually, those are really the same thing. Is continues to be a very strong sector for us, but it is a very relatively small volume sector with very high margins. And so actually small swings in volume can have a very big impact on our earnings. And what we saw in the first quarter is we did see customers, particularly in the UK, building volume, in anticipation of a Brexit move, clearly, it didn't happen, worrying about tariffs and availability and everything else relative to Brexit. And what, you know, it doesn't again, it's not a huge volume, but it swings a good bit of the margin. If you look at our EEM kind of quarter to quarter, 1st quarter to 2nd quarter, of what we say is the volumetric impact, of that volumetric impact, So 7% to a volumetric impact, 4% of that was actual E and volume 3% was just the mix with most most of that being medical. So 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 quarter, but medical tends to be a bit lumpy. We get a big order once we have FDA approval. And people will stock up as they prepare for run and then go down. So it tends to be a bit lumpier, maybe there's some of our other but we did see the 1st and second quarter primarily because of the Brexit impact. Our next question comes from Mike Sison with KeyBanc. Please proceed with your question. In terms of the acetyl channel, just curious, you guys, as you've talked about, do a good job pivoting seen upstream, downstream geographically. And so 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 and maybe it's hard to say but just any current that you're going to stay downstream that type of thought? Yes, thanks, Mike. So on on the asset yield chain, you know, quite frankly, we're quite pleased with where we are. I mean, continuing to turn in 7 consecutive quarters above 20%. And I think the 2nd quarter is really just a good example of the strength of the model in asset yield and the ability to have organization to continuously do activations as as Todd just described most value at wherever it exists beyond the chain. I think an interesting point and maybe a bit to question, if you look at the very low pricing we're seeing in Nasty Hills in China, less than $400 a tonne. The last time we saw this level of pricing was back in first quarter of 2017. And if you look at the earnings of first quarter 2017 for asset sales, it was $109,000,000. You compare that to the 2nd quarter now at $189,000,000. We've had an $80,000,000 uplift and the value of the acetylcholine in basically the same economic conditions, based on the strength of the model and the the folks deploying and focus on productivity and all of the other steps. Put another way, margin at field went from 14% in first quarter 'seventeen to now 22% in second quarter 'nineteen. So 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 to activate that model and continuing to deliver on that 200 level quarter on quarter. And 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. And then as a quick follow-up, in terms of EPS, you did about what you did $5 in the first half and just EBIT about close to $800. So if 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 of just EBIT looks relative to the first half? Yes, again, we are assuming, some improvement in market conditions based on my earlier comments. So obviously, if it will go with that. But clearly, also on an EPS basis were helped by the share buyback that we've had in the first half of this year as well as last year. But let me turn it over to to Scott to maybe give a more complete answer. Yes. I think that's really the point. I think we do need a slight improvement in the adjusted EBIT. And I think Laurie talked earlier about how, we expect that given the destocking we saw in the first half, that we believe the second half can be better. Order book starting out in July are a little better than what we saw, particularly in the second quarter. And then just what we saw in the first half of this year, we're currently not baking in the same level of Q4 seasonality. So when you And I take all these 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. Our next question comes from John Roberts with UBS. Please proceed with your question. Thank you. Methanex is going forward with its 3rd unit in Geismar. Todd, could you give us an update on the Clear Lake methanol expansions that you're doing with Mitsui? Yes, thanks, John. We announced last quarter. Our plan is to take that unit up to 1,700,000 tons. That would be operational sometime in 2022. We're pleased with the the output of that unit that continues to contribute value as it's running above the original design capacity. But 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 17 by 2022. And we'll update that specific timing as we work through the progress. We did receive the requisite permit from, from Texas to proceed down the path there. Okay. And then, Laurie 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? So if you look at actual automotive bills, 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 truck that EU was down. You know, of course, the build is interesting, but what really matters to us is what we're, you know, what the demand for product is. And there, 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% to 30% on volume. So clearly, an indication to us that destocking was continuing into the second quarter. Were you down in line with those tier 2 discussions that you had? No. REE on volume on an actual volume was down about 4% in total Yes. And John, the auto piece of that was just maybe about a percentage point higher than that. Our next question comes from P. J. Juvekar with Citi. Yes. Hi. Good morning. Laurie, as the center of gravity for acetyl shifts in the U. S, at the same time for EM, the focus of growth seems to be China. Does that mean that there would be less integration between the two bills is going forward? Hey, it was an interesting question, P. J. I don't think there's less integration going forward. I mean, 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, you know, continue to have a growing EM business in the U. S. So I don't see it having a significant change in terms of the amount of integration between the two businesses. Okay. Thank you. And has the city, asset prices dropped? You nicely pivoted to VAM and EMulsions, And so that's a great tactical move from your team. But when do competitors catch up with that move, or 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. So the interesting thing is, I think there aren't any competitors who can do the same thing. I mean, that's the beauty of our in graded model. I mean, there's a lot of competitors who make acetic acid. There are competitors who make bam and their competitors who make emulsion. There's not many who make all three from the start of the value chain at CO and methanol all the way through emulsion. And that's really where our model is, I think, differentiated from others and is strong and allows us to give less volatile results in this level of earnings is because we are fully integrated through the chain and fully integrated geographically which not all of our competitors are. So we have the ability as we did this quarter to reduce our exposure to Asia in increase ourselves into the Western Hemisphere where, you know, where margins available margins were higher for BAM 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 Laurie's comment that your $80,000,000 a quarter better now in this kind of a top acetic or acetyls market than you were in Q1 of 2017. It would strike me that that's gotta 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 $80,000,000, where does the majority of it come from and how much do you think is structural versus maybe just some transitory fortunate business? Well, so Duffy, I mean, I think Look, we worked very hard for these results. So what I would tell you is, I don't have the exact breakdown in front of me. I mean, 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. So it's certainly price, and the price we're realizing for, you know, VAM and emulsions, if you will, versus the septic acid. But I think the point is it is the strength of value chain, the strength of the geographic model and the, the, the, the talent of our folks, if you will, to be able to constantly flex and make decisions every day about where to attract 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. Yes. And 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 tons, we've achieved more options frankly with this global network that Lori just outlined So it's really the combination of that and the real time use of data, which provides insight to make these calls, these activations to, you know, to affect these decisions that contribute to the results. We believe that repeatable. And we're going to look to add additional value steps going forward. John asked the question about the methanol expansion and his other value addition steps that we're pursuing and what the layer is on top of the unit count. Thanks, Scott. And I think we shouldn't ignore productivity. I mean, for Sellanese, we are delivering about $100,000,000 a year in productivity steps. So again, roughly kind of fifty-fifty, that certainly doing that year on year on year is making us more competitive as well, lowering our overall cost base. Great. And then, does the market believe that the coal gasification explosion at Yema is going to be a big deal the acetic acid in the acetyls market in China? Yes, Duffy, I think it's too early to get into that. I mean, it's a terrible terrible thing, many, many lives lost and multiple injuries. And they're in Pinnan province, there's something like 11% of domestic Chinese capacity in that province. So it's a from a country perspective, that province is a big producer. This particular unit was only a couple of 100,000 tons, so call it 2% or so of the domestic capacity. So we're watching that. We're, it remains to be seen what the province does. Across the other units and there in Hanan and whether steps to take into curtailed, operations there. We're we're focused on what we can do with our customers to keep our efforts and business connected and ultimately work the Q3. Terrific. Thank you, guys. Our next question comes from Lawrence Alexander with Jefferies. Please proceed with your question. Good morning. 2 quick ones. First, on the uptick in in the order book that you've seen recently, can you give a sense for how broad basis is it, where there's any particular regions that are stronger than others? In terms of the pace of improvement? And secondly, on productivity and, turnarounds, is there any lumpiness that we should be thinking about for 2020 2021 in terms of timing of outages going forward? Yes. So on the order book, we're seeing it fairly broadly. I would say the because of the declines we saw in 2nd quarter, I mean, it's probably more noticeable in some of those grades nylon and last customers, that I talked about seeing good recovery in Palm, good recovery in LCP into electronics. So I'd say it's pretty broad, across across the different grades that we make, in the order book and also pretty spread between the regions at this point. Yeah, on turnaround, Lawrence, we're doing that work right now on, kind of flanging that up across the corporation as we do turnaround planning and we'll provide more insight into that, probably in October. Our next question comes from gautam Panjabi with Robert W. Baird. Please proceed with your question. Thank you. Good morning and Laurie 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 pressure in the first half is now behind you? Or are you assuming any sort of acceleration in end market volumes, including in the EM segment? Yes. So 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 3rd fourth quarter. And some assumption around not seeing the amount of seasonality in 4th quarter, we usually see for destocking because we believe that destocking has already occurred. Okay, that's helpful. And then just in terms of some of the supply chains for market 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, would you call that in your prepared comments versus some of the other regions across Southeast Asia more broadly? Thank you. Yes. So we are very focused on expanding, our China and not just our sales mean, 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. And so it was very much on a exporting material from the U. S. Exporting from from Europe into China. So 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, But if you look at our business now and especially as you go into consumer and electronics and things that maybe change every 6 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. So we, you know, we are already have a couple of projects going in this year to add compounding lines in China. And 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. Yes, good morning. Thanks for taking my question. Lorian, 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? Yes. So we pulled forward about, about $60,000,000, let's call it, of capital projects, capital spin. So, you know, give you an example, these are things like retrofitting and refurbishing natural gas boilers to get better energy efficiency at plants. I mean, 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 $100,000,000 a year on productivity, that number for this year will be between $150,000,000 to $200,000,000. So we've been able to pull in call it $50,000,000 to $100,000,000, you know, on a full year basis now, we'll, obviously, not all was implemented January 1st, so we won't get all of this year, but call it $50,000,000 to $100,000,000. Got it. That's helpful. And 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. And then how much of it's really kind of specked in and is really tough to displace, around random price cuts or lapses in discipline? Yes, 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 is really very sticky. I mean, very, very hard. A third of it is, is backed in, you know, the probably others could be are either already expecting or could be. And then a third of it is more what I'll call me too kind of product, which is easier for people to to come in and out of based on price? Yes. I think that's exactly right, John. We're, I mean, about a third of the business is a little bit more transactional. It's still an engineered solution. So it's not something that changes, I mean, from one day to the next. But it can, it can be switched out you know, the the reality of it too is, you know, we can also switch out between polymer banks. So 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, but it continues to be important for us as we build a project pipeline and really start to try to put more focus on that spec in sticky business that Lori talked 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 and recent months, recent quarters. My question is, do you agree with that? And 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 thinking do you see competitors throttling back simply because they go cash negative, for example? Yes. Thanks, Kevin. It's always a little bit hard to say, but, you know, and I'll let me ask Todd to to follow-up my comment. You know, we know in China that, some capacity has been intentionally shut down due to combination of demand and pricing. 2nd quarter is traditionally a fairly heavy turnaround quarter as well. So certainly in the, in the U. S. And in Asia, we see some taken out. Now having run operations 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. So it's why it's always a little bit unclear about how much is economic versus how much is maintenance. But certainly we've seen both. Tom, you may have more specifics you can provide. Yes, Kevin, it's a good question and to Laurie'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 the 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. So on the heels of that, to your question to your point, we do believe kind of intentional curtailment occurred late in Q2. We would call a run rate typically around 300,000 tons of sort of normal outages. We think that that might have doubled, if you kind of 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. So there were some curtailments indeed and As we go into Q3, that's going to, that's important to track and watch and really sets the tone for improvement as we go into second of the year. But demand is critically important. We've got to focus on demand conditions and starting to see that, that industrial space, particularly in China, starting to recover and that will help a lot really all of our businesses. That's very helpful. And then 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 and really see how the fuel markets react in Singapore? Yes, no, that's exactly right. I mean, we've announced our intention to do an acetic acid reconfiguration. We are still progressing with that projects. But ultimately, the decision, it is based on productivity. By the way, it is based about utilizing lower raw material costs in the U. S. Gulf Coast. And taking capacity out of Asia. But 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 NAM change, margins? And we'll make that decision at that time time, you know, based upon where we are, for on both of those. Our next question comes from Arun Viswanathanuen 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, looking at Q3 is between Q1 and Q2 would put it maybe a $2.50 and then your statement if you see a path to the $10.50, so that would imply maybe around $3 just, I just want to understand that path a little bit more. I guess, you know, 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 S fields? Once you see the risk factors as well? Thanks. Yes. So, as I think we said, we really still confident in our ability to continue to do, deliver acetyls in the 200 range, clearly, if we see firming in acetic acid pricing as we've had some indications, if that's the same, that's could be further upside for acetyl. And for all the reasons we discussed earlier around destocking, etcetera, we continue, we expect to see recovery in Engineered Materials, as we go forward through the end of the year. And then, of course, since we're talking earnings per share, we also have the impact of, of the share buyback and seeing kind of the full year impact of that on the numbers. Okay. Thanks. And do you also expect to update your longer term targets that you provided last year for 'eighteen through 'twenty at some point? Yes. So, Arun, so 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. So 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. As well as the out years beyond that. Our next question comes from Aleksey Yefremov with Nomura. Please proceed with your question. In inherent materials, how should we think about your margin sustainability? What was the level of margins for wholly business in the first half representative of what you could see in the second half? No, 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, you know, 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 destocking. So I think for our own as well as for our affiliates, but especially for our own businesses, we expect a stronger second half than first half. Yes. And Alexis, just, you know, typically volumes are strongest in Asia and 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. So typically our Q4 margins are a little bit lower. So that would be something, just keep in mind as well. Great. Thank you. As a follow-up, you guided third quarter between 1st so somewhere between 1st 2nd quarter. Should we think about that guidance as sort of the midpoint or are you kind of close it to the 1st quarter level or the 2nd quarter level in your thinking about 3Q? Alex, I think we're still fairly early as we start the quarter. And so, I think it's going to really be how demand materializes. I think there's been some pretty public announcements from some of that, for example, automakers taking summer shutdowns. But we do expect to kind of more or less destocking coming to an end as we talked about. So it's in that range. And as we work our way through, the quarter we have better idea on where we've but it's somewhere in that range. Thanks a lot. Our next question comes from Jim Shoon with SunTrust Robinson Please proceed with your question. Share buybacks were pretty robust in the quarter. Are still targeting around a 7% share count reduction for the year. It does seem like you're on track to do even more possibly. Yes, Jim, we've been very, open about the fact we're going to be opportunistically share buyback We expect this year to be in the range of where we were in 2018. We did $800,000,000 in 20.18 and we expect to be in that general range. We're finishing the first half at $500,000,000. In the last, 12 months, we've bought back about 9% of the standing share. Thank you. And on the full year outlook, $10.50 you're assuming an acceleration of sorts in the 4th quarter. If you don't see that uptick what kind of downside do you see for full year 2019? Yes. So 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% to 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. Could you talk about how the month of June performed relative to the entire second quarter for both a Seadrill chain and engineering materials that 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? Yes. So let me talk about E. So I 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. So definitely, I think June was actually probably not our strong month in 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 for since May of last year in China. We do, we don't necessarily think that's sustainable because it was based on some very heavy discounting going on in Giants to move via that will meet the new air emission standards that are going into place. But the June was a bit of an interesting month So some areas of strength, some areas of weakness, I'd say for E, not a good month for the end of the, a good month, but not atypical for the end the quarter. I think in acetyls, I don't know that it was significantly different. I can ask Todd to comment. I don't actually think it was particularly strong. Are we as comparison to the rest of the quarter. Todd, do you have any? No, that's good. I think that's right. I mean, the middle month was probably the lowest of the 3, but not to your point pretty, pretty balanced overall. Great, thanks. And then, Todd, 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? Well, again, similar to the, comments from before with respect to our operational activities. So we will flex our units as we as we see the match with customer needs, customer demand, costs, profitability. So we'll do that in all units around the world. Ability is important for us. So, I wouldn't, 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 gotta watch the development over the course of the quarter. But, No, I think that was a little too severe of a characterization in terms of the Q to Q drop. So, I, you know, we're, 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. So we've got probably a $10,000,000 headwind there that we've got to work around, but that's probably the one thing to from an operational perspective we've got to work through. 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 Kivers for closing comments. Thanks, Rob. Certainly, I'd like to thank everyone for listening in today and the good questions. We're, as usual, we're around after the call to address other questions that you have. And, Robbie, with that, you can close this out. Thank you. This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.