Q2 2020 Celanese Corp Earnings Call
Greetings and welcome to the Celanese Corporation second quarter, two dozen 20 <unk> earnings conference call.
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It's now my pleasure to introduce your host eight Paul Vice President Investor Relations. Thank you you may begin.
Thank you Jesse welcome to the Celanese Corporation's second quarter.
2020 earnings Conference call. My name is eight <unk>, Vice President Investor Relations with me today on the call our Lori Wright Kirk Chairman of Board and Chief Executive Officer, Scott Richardson, Chief Financial Officer, Celanese Corporation distributor its second quarter earnings release via business wire and posted prepared remarks about the quarter on our investor relate.
Actions website yesterday after market close.
As a reminder, we will discuss non-GAAP financial measures today, you can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website.
Today's presentation will also include forward looking statements. Please review the cautionary language regarding forward looking statements, which can be found at the end of the press release as well as prepared comments.
Form 8-K reports containing all of these materials, but also submitted to the FCC.
Because we have published our prepared comments yesterday, we will now open the line directly for your question.
[music] Jesse go ahead and open the line for questions. Thank you I, just try and will be conducting the question answer session. We ask that you. Please limit yourself to one question and one follow up if he would like to ask questions. Please press star one on your telephone keypad. The contribution from indicate that your line is and the question Q you made fresh start <unk>.
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Thank you. Our first question comes from the line up John Roberts with Yes. Please proceed with your question.
I can't make nice quarter.
You noted that Easter auto builds have recovered was your Asian engineered material sales up year over year as well and do you think they will accelerate in Asia. After the poly plastics deal.
Yeah. Thanks, John I you know we are thing we have seen the recovery in age I mean Asia was up about 2%, but I think year over year, we really expect age it'd be pretty flat to 29 team.
[music].
Okay, and then you pivoted that's it feels to emulsions in powder sober Bam can you characterize the range swing possible between Bam mulching, some powders in your mix.
Yeah, I mean, maybe just to give you an idea I mean, so we actually moved about you know just over 50% more into 'em Altman as an example in the quarter. We moved you know kind of 1% more into by we move more acetic acid and.
Other derivative back into China, consult with a little bit more robust market, even though the margins were a bit lower I mean generally we characterize it as we have the ability to do it anywhere from 40% to 60% of our eat acetic acid into downstream derivatives.
Okay. So 20% range that's great. Thank you.
Uh huh.
Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.
Hi, Thank you and good morning, and just want to square a couple the outlook comments I'm starting on the he's still chain.
You mentioned class three Q versus Twoq Q.
And you also mentioned that a you know you don't don't expect prices to improve until demand guests. It gets back to pretty cold mid level.
And then later in the comments you talk about 29 to 2021 thing is an opportunity for demand levels to be greater than 2019, So I want to make sure that comment.
What was also meant to apply to us either.
So there still chain and if you think that's sort of will be the will be the trajectory.
Yeah, so until chain I mean, we do expect some volume recovery modest volume recovery in Q3.
We are expecting though a big change in pricing as we said, there's still a lot of available capacity in the world. So we think that put a limit on the pricing.
You know what we are seeing some improvement in methanol pricing in early Q3, we are seeing some improvement in acetic acid pricing. So maybe even slightly up margins at the beginning of Q3, but we don't really see the fundamentals yet to really big maybe that's sustainable for the whole quarter you might remember in second quarter. We also saw a bit of an uptick in March.
In early in the quarter, but that that really flattened out at the quarter went on so right now where they need a modest volume recovery pretty flat margin and that but that volume, but we do have some smaller turned around in Q3, incomprehensible, Frankfurt, and Singapore, which kinda offsets that modified.
Im recovery. So that's why right now we're calling is essentially flat again, we're seeing a little better margin expansion early in the quarter, but right now we don't know that that's going to sustain but clearly if it does that will be oh.
Yeah, and I looked at.
Sorry bids have you looked at.
21.
You know, it's still early on the STL Cheney and we don't have you know that long and visibility, but we do we are anticipating given conversations with customers that demand will be improved versus 2020 at least that's the current outlook wants to see if it gets up to 2019 levels or not you know we did see a fair.
On a de stocking in 2019, a in the business, but you know that 2021 comment was probably a little more related to engineer manager.
Okay, and I did want to follow up on the de stocking in the seasonality comments that you made for Fourq. You mean, obviously you know recognizing for Q. It in a normal year is a de stocking corridor is obviously not a normal year you know when you look at started the volume of to Q.
And I recognize it's very hard to forget a fourq you at this point, let alone August but.
Are you just trying to be conservative assuming that customers will de stocking for QB. That's what they always do or is it possible. This year, just because it's been such a strange year with such a soft to Q that we don't actually have a down a fourq you sequentially versus threeq, you because customers demand still coming back and customers don't have the inventory levels to really do it.
Howard how are you thinking about that.
Yeah, I would say Vincent were really assuming normal.
Seasonality I wouldn't say, it's as much de stocking is just you know slightly lower demand this demand come off in fourth quarter for construction and some materials. Another thing so not really de stocking as much as just normal reduction in demand now you know what where we're keeping our options open work you know maybe would be.
Abnormal second quarter, we have we'll see people continue to run a bit stronger in Fourq you, we've seen that in some years, but we're not assuming that at this time because again, we just don't have the visibility that far out. So we're just assuming it kind of a normal level demand drop off associated with fourth quarter, Yeah, Vincent that Q4 demand enough deals tens.
To be weather related you know in construction paints and coatings and in our emotions business. So yeah, we think that will probably come to fruition, where we may not see as much of an impact is on the engineered materials side, we'll just have to wait and see even though we're bringing turnarounds forward into this year, we have enough flexibility in our volumes that if we.
We don't see that de stocking or that the seasonality in any m., then we should be able to respond.
Okay very good appreciate to help.
Thank you. Our next question comes from Bob Sport with Goldman Sachs. Please proceed with your question.
Thank you very much I'm curious why do you guys said you know back at the last a big Investor day talked about some.
Aggressive, but maybe not a specific timeframe for some acetic and van expansions can you just give us an update in light of what's gone on this year how that.
James Your view if at all.
Yeah, I think Bob So you know these city gas expansion was really around the reconfiguration. So the expansion that clear lake coupled with you know some productivity moves in Asia does we as we said last quarter. We have we have delayed that project for about 18.
Really in response to the reduced demand dynamics, we've seen for acetic acid as well as a low oil price environment, which makes Singapore look you know somewhat more attractive than closer to Gulf coast natural gas pricing.
So that's the big movement acetic acid you know, we've also announced them expansions of them and de facilities. Those continue on schedule I'm consistent with what we've said before you know so we're really talking in the 2022 plus timeframe, because we really see the demand for those products and as it applies.
I know you attack them with others, we see a very robust future for Bam and be another downstream derivatives at sea to gossip. So those continue on schedule I'm acetic acid is delayed about 18 months.
And then yeah I'm I'm, just curious given the pretty extreme volatility in a lot of.
Polymer pricing.
Has that.
Provided some opportunity is there some threat there from you know inner material substitution. He just sort of talk about your development effort with customers. There in light of all this volatility what's that done to the whole process that you guys have in terms of the innovation and new product wins and that sort of thing.
Yeah, you know so I think there's been a number of opportunities that have come up in engineered materials. So you know one opportunity was we've seen probably more so than price volatility I would say is around.
Desire to have more certainty on supply chain and so we have seen inquiries from customers and wanting to get you know product within the region that they're going to use it to de risk some of their supply chain. So that that's been a few opportunities for us and we also just see a lot of opportunity.
You know consistent with what we've laid out as our strategy. So really more aggressive movement into electric vehicle, we seem a lot more opportunities there, especially for some of our recycled products like eco med and some of our flame retardant pylon, we see more opportunities there for light weighting.
You know, we just see electric vehicles, which obviously has also getting a lot of help here you know in the cobot environment from stimulus packages and things, especially in Europe, and Asia that it's been a focus for us for the last 18 months now and we see it really developing to where for example, the assessable market for us and electric vehicle.
You know is about 30% greater I'm for Sony products than it is and in traditional vehicle. So you know we seem you know by GE is another area more focus on medical pharma that has you know that's provided some opportunity. So I think you know some of the strategic focus is that we've laid out.
In the last year, we've really seen strengthen three coded as well as some new ones developing around things like you know people wanting more materials that are resistant to the use of disinfectants and you know in sterilization.
As well as you know more focus on pharma compliance. So yeah, we actually see a lot of opportunity and in engineered materials that are pretty optimistic about the level of projects with we've had this might be in a cobot environment.
Great. Thank you.
Thank you. Our next question comes from Duffy Fisher with Barclays. Please proceed with your question.
Yeah. Good morning, maybe just a follow up on E. M. When do you look across your suite of all the different polymers, what's the weaker demand have you seen any erosion or material erosion in pricing caused by that weaker domain.
You know I would say.
You know across the board on average no in fact, we probably saw a little bit of margin expansion in the second quarter with lower raw material and we should see that raw material advantage continue because there's always a bit of alike.
In raw material advantage and so you know while in some IND application like consumer and industrial there's certainly been and automotive theres been a softer demand and some of that has maybe tightened up pricing and others like electrical and medical yeah, we've seen higher demand that we and we've seen you know improve.
Pricing. So you know on average I'd say, our margin variable margin has been pretty consistent quarter to quarter and if anything we're seeing just a little bit of margin expansion overall.
Okay.
And if we just moved to Htwo you know the pandemic influence on cigarettes in your toe business I mean, I don't know, but its respiratory disease I can't imagine smoking cigarettes as enjoyable trying to wear masks have you seen any influence on demand for either cigarettes or your total business.
Because of co bid.
You know I know I'm not at all we've not seen any impact.
On demand are any impact actually on smoking trends in fact, if you look at China, China through June is showing a 2% increase in demand for cigarettes, and you know anecdotally even in the U.S. against these other reports coming out like Altria is reporting you know only at.
You did present declined this year versus what they thought would be a 4% decline is smoking. So I would say in some areas of the world. It would appear people have more time in their hands and are using that time to smoke more not less as as kind of you know strangers that seems in this period. So were you know we're not seen any impact in demand if anything.
A little bit of an uptick.
Great. Thanks, guys.
Thank you.
Thank you. Our next question comes from P.J. Juvekar with Citi. Please proceed with your question.
Hey, laureate, Eric Petrie on for Pizza.
Higher in the engine and engineered materials can you discuss your project pipeline you were talking about moving from 4000 last year. The 5000. This year I. So you said I crackers that flowed down with lower auto build.
No I mean actually you know our Q2 is on track for in terms of project wins with what we expected you know despite the cobot challenges and I would say you know even if you look at kind of value per win which is where we're trying to focus this year, which is more on value that's actually been flat year on year, which we think.
And the Kogan environment is also good that we're getting good value out of our product you know I would say our you know R&D immaterial folks are just doing a fantastic job being creative finding ways to actually increase the amount of contact we have with our customers, even if its remotely being being able to use remote environment to get higher level contact with our CFO.
Customers and using some really great and mechanisms like webinars to really not just touch existing customers, but also do prospecting for new customers and so you know we have found you know customers still one solution. We're still in the business of providing solutions you know our folks are really focused on that.
And you know in addition to the ones we called out we've had several great examples.
Oh projects wins in this quarter I mean, just to maybe just put it a little color around it you know in medical grade Palm, we had a pretty big win there for an auto injector application in Europe.
We signed a development agreement within <unk> with an app for application of our vital those EPA, which came up pretty good you know upfront development. The we have a new high voltage connector application for electric vehicles for flame retardant nylon, which we also signed this quarter and then we actually have.
Quite a lot happening in Fiveg based as folks are looking for better signal integrity, which is a great application for primarily LCP, but also PPS and then for Lightweighting applications, which is maybe more around LNG. Another polymer. So yeah. We're really excited about the wins that we're seeing.
And non automotive space, but of course, we called out we also had a big wins this quarter in the automotive tier one space as well.
Great. Thank you for the insight that turning to the S. Appeals chain, we expect some volume improvement into third quarter, but no pricing. So that just do the raw materials, you're expecting there remain benign for methanol and the airplane or could you talk a little bit about those raw material push.
Jason versus a demand Paul.
Yeah, it's a second quarter raw materials with I would say kind of at an all time low it was lower sequentially from from Q1 across all areas I mean methanol was.
Very low in all regions I mean, we're seeing you know 20% declines in the U.S. and Asia in terms of pricing.
Ethylene was you know very low at 15% declines in the U.S., 25% in Europe natural gas was low I mean, everything was really low in Q2 as I said to an earlier question. We are seeing you know maybe some slight movement upward in terms of raw material and also a city gas pricing.
In Q3, but we saw that also in early Q2 and it didn't sustain so you know our assumption now for Q3 is you know we may see some movements with pricing we may see some movement with broad they tend to move together. So we are next best it really expecting much margin compression, but we're not expecting margin expansion either so that's our assumptions.
Going forward.
You know if we see sustainable movement, you know there may be an opportunity for margin expansion, but we've not baked that into our numbers.
Okay. Thank you.
Thanks, Eric. Thank you. Our next question comes from line of Mike Tyson with Wells Fargo. Please proceed with your question.
Hey, good morning, nice quarter, Laurie, but what do you think the assets will change can get back to you know once yeah, maybe a post coated.
Volume number or you know that back to maybe a pre covert volume if you can get back there at some point in time, and then and what do you think needs to happen in terms of margins and pricing and and just sort of get to that to that run rate.
Yeah. Thanks, Mike.
But we still feel like kind of foundational level of earnings for the asset till chain isn't that $175 million to $200 million the quarter, So kind of that 700 to 800 million per year.
We feel pretty comfortable with that I mean, even if you look at where we are right now in this quarter at say 116, Yeah, we had an 11% volume lost or due to cobot. If you remove the low tech acquisition, which was vice versa. So that's about $40 million right. There and then we had another kind of $20 million.
Price margin, which I'd say was tied to those really low volumes in utilization.
Particularly looking at advances have you looked at that you know we're still in that we still feel like we're in that 175 to 200 million range kind of without the you know extreme impacts that we saw from co bid on volume and resolving that resulting impact on margin. So I really think it just takes back to getting.
To more normal levels of utilization if you look at utilization. This this quarter I mean, we this is really the lowest of the trough conditions. If you look at China, China utilization was below 60% global utilization with only mid Sixtys. So I think really to get back to that level of foundation.
The learnings you know we need to get back to the you know kind of 70% and higher.
Level of utilization.
And it's really about recovery western hemisphere demand, because that's really where we thought the weakness in second quarter.
Got it and then when when you think about 21, you've accelerated some turnarounds. He has some cost savings how much.
Sort of growth do you have somebody in your control as you head into 21.
Sort of an anchor for some yeah, some profitability improvement.
Yeah. So it's really been to 2021, you know we're really looking if demand continues at the current trajectory. We're really then in 21 nearing the levels we saw in 2019.
As you noted earlier with my optimism about our project model and he I mean, we are having a lot of new project wins, new opportunities that we've developed that we've taken the E.M. space will let us. Its you know again, assuming the demand recovery continues let's let us exceed the levels that we had in 2019 based upon the new price.
Jack that were seen I'm being developed so again really around the beef base also elective surgery, you know, we had a bit a bit of almost I'd say at $10 million surprise this quarter from elective surgery deferral I mean, we knew they were being pushed out what we expected them to come back yet at the end of second quarter, we really.
We haven't seen them come back that was about a 10 million dollar hit in the second quarter, even in the third quarter, while we think Electrosurgical come back we are expecting much of that's come back in the third quarter, because theres some inventory that needs to be taken down at at the part those suppliers and so you know that recovery really comes in fourth quarter.
And we think it's 2021, so we think that will be an upside going it's 2021 as well you know adds till inventories are generally pretty low. So we think as we see demand recovery that we'll pull through to volume and margin in assets Hill and then as you said, we kind of Evans 70 to 80 million dollar help next year from less turnaround.
Great. Thank you.
Mhm.
Thank you. Our next question comes from the line of Matthew.
The Bank of America. Please proceed with your question.
Hi, Thanks so.
The last few m. deals targeted nylon compounding, but I'm, assuming that opportunities that tapped out now so where do you see future cash deployment headed from a polymer technology standpoint.
Yeah.
So they have we have targeted nylon I mean, we put a lot of money isn't nylon acquisitions, a few years ago and so we've really been working to kind of exploit that part of our portfolio and that new capability that was the rationale behind those acquisition and and I think quite frankly, there's a lot of runway left for us in nylon and especially in.
Some of what we think are unique and good offerings, we have around recycled nylon. So again, our eco mid series as well as our flame retardant nylon. So we actually think theres a lot of growth left in nylon with our existing asset or if you well. So as we go forward you know.
Yeah, we'll we'll continue to sell that as long as as well as our other Palmer's as you think about M&A going forward our capability going forward I mean, clearly there are some other polymers that that may be of interest to us. We continue to look for ways to further expand our capability within some of the polymer that we have as well.
Well as expand our reach maybe to Palmer's that are focused on other end you sources, our other geography that we haven't penetrated that completely.
Okay.
And then.
You talked about the a European compounding footprint consolidation you put out the press release I didn't I, maybe I missed it but did you highlight any savings or synergies from that rationalization or optimization should we expect anything there.
Or just kind of yeah.
Absolutely I mean, it a bit tides. Your previous question I mean, you know when we did the theories of acquisitions over the last few years, you know, we assumed a certain level of synergies associated with being able to optimize footprint further improve our compound and capability and skills as well the polymers that we acquired and so you know it usually.
It does take US a few years to really get our handle on the business and what's happening and see where those opportunities are so this announcement of the consolidation of facilities in Europe, and establishing a clear compounding center of excellence at Orly I'd say, it's really the natural progression from those acquisitions that we made a number of years ago.
So and so there is clearly productivity that comes with that as well as we think improve but in development capability customer support supply chain optimization et cetera, I would think of it in terms of you know we typically only do projects that have greater than 20% return. This one follow up.
This is that category and it will have a two to three year payout.
Right.
Thank you. Our next question comes from the line of Jeff Zekauskas from JP Morgan. Please proceed with your question.
Thanks very much.
What's been the.
Growth rate and medical applications in your engineered materials business. So far this year.
It's a job I you know I think the B medical application has been.
Relatively flat year over year with with some growth in some applications, but clearly offset by you know that decline we've seen this year and elective surgeries and what that has bad again I don't think about the long term trend I think as we have in previous years, we will continue to see.
See you know mid digit growth year on year in medical.
But I think so I think this isn't this is just the timing impact in terms of electric elective surgery, but because because of that change in elective surgery. This year, I would say relatively flat year to year.
You have a relatively mild volume forecast and Seattle chain for the third quarter relative to the second quarter is that because of celanese his own.
Yeah, a restructuring activities are planter turnarounds.
Or does it have to deal with the rate of the growth of Seattle industry itself, maybe you could talk about.
The growth up the industry in the second quarter versus the growth of the industries third quarter.
Yes, so I mean, we did see some good recovery in volume quarter, one to quarter to you know as we saw Asia really coming back.
You know earlier, but we saw a lot of decline obviously in the western hemisphere and in quarter. Two now as we move into quarter. Three we do expect it's like I said modest volume growth in the western hemisphere.
But you know we are being probably a bit conservative here in terms of what we think volume growth will be in the third quarter just based on what we're seeing as the trends. So far yes, Jeff. If you look at Q2 on a year over year basis, we were down somewhere in the 20% range I do look at Q3 year over year that's brought.
Looking more like 10% to 15% so.
Modest increase.
Driven by some slight recovery in the western hemisphere.
Great. Thank you so much.
Thank you. Our next question comes from Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Good morning.
I look at your acetate tow earnings in the first half of the year.
Your equity earnings from the Jvs in China are up double digits in percentage terms.
While the consolidated sales are down looks like 22% or so so my question is it seems a lot more pronounced than the underlying demographics.
Mix shift.
Been more acute for selling is for some reason so why is that the case and do you expect it to continue.
Yeah, So Kevin I mean, I think it's there was a onetime event you know we had a large.
Contract, which came off at the into 2019.
Which actually shifted volume to our affiliate and took it out of our own earning and so that you're seeing that shift that was something that was planned we called it out in past quarters. So it really is that shift into affiliate you know a volume coming from our affiliate versus coming from if you also.
Okay.
Yeah, Kevin if you can go back to our Investor day in 2018, we telegraphed this that this would be coming.
Understood. Thank you for that and then.
So my question relates to your absolute fuels business in Asia in the prepared remarks last night, you referenced the extension of some supply deals and.
Joining as well as Singapore, and so maybe a two parter was there any benefit associated with that in the second quarter and then longer term images that have any any bearing on your flexibility to rationalize assets in Asia.
If and when you eventually proceed with the expansion plans in the United States.
Yeah, and so look I mean, these are contracts that have come up in a normal way for renewal I mean, we've been happy renegotiating them in this offer the environment that we've been able to get some additional productivity working with our supply partners and so you know we're happy about the security of supply.
This gives us is in both Nanjing, and Singapore going forward as well as some additional flexibility we get in these locations going forward that to really help with better manage our assets Hill chain. So there will be some productivity out of both of those contracts going forward most of that though will occur in future years in 2020.
In one and beyond.
And it does not limit our flexibility Kevin to continue with our reconfiguration project in clear like when we start that back up again.
Very good I appreciate the color.
Thank you. Our next question comes from the line.
It was Olympic Global. Please proceed with your question.
Morning already.
Good morning, you know quick question around Diasa deals chain and the interplay between I'm going to product pricing and raw material pricing I mean, if I remember correctly. Historically you guys talked about you know raw materials volatility actually being favorable invite you know being favorable for that business line right.
And you know if we take a look like you rightly said you know through the course, the first off of the yeah.
Ethylene pricing came under tremendous pressure met to know what pricing came under tremendous downside pressure and everything was kind of going down in a straight line I know we've seen some buoyancy in ethylene some buoyancy in methanol, but there are enough sort of you know industry folks out there that expect or you know that boy.
In seemed to be shortly so the question really is are you expecting raw material buoyancy going forward and what dr. would that cannot be a favorable.
In vitamin for the AC business.
Yeah. So you know, but we have been a very low raw material pricing I mean, and we've been very low oil oil tends to draw low low rod and normally when we see low oil low raw as we actually expect some margin compression assets hills, where actually.
We're very pleased in Q2 that is a really great work by our folks in the assets Hill chain and constantly pushing the envelope around activations and there's been a product into.
Throughout the train throughout the geography that we were able to.
Well maintain our variable margins and not have any compression you know usually when we see raws going up we would expect some margin expansion, but I think the way you characterize is correct. We there isn't buoyancy, but we are not convinced that that will remain again, we saw the same buoyancy at the beginning.
Q2, but then saw raw materials go to some of the lowest that we've experienced in a decade. So at you know, although we're seeing them why NZ at the beginning of Q3, we don't still see any fundamentals that would lead us to believe that that is sustainable for the quarter and that buoyancy wide cuts on as you as you mentioned.
I mean that up and down allows us to we will flex our assets that are based upon different raw materials in different feedstocks in different regions and just that uniqueness that a model an asset deals that up and down who would that volatility we tend to be able to to make margins on.
Oh baby care and as a follow up you.
No again sticking to the Oxyfuels Jane.
Recently, we obviously saw knowledge encumbering exit that business and I guess, a new entrant when eventually becoming in and you know one of the reason cited for the exit was that you know the company talked about how they had kind of under invested in that business over the years.
And they wanted to focus and their core business I'm. How are you guys thinking about the evolution of the market you know with I guess, you know that large incumbent leaving new entrants coming in and and some of the statements coming out.
You know as reasons behind that exit.
Yeah I like you know any of this is an experienced player in the business.
We don't see any meaningful change in terms of the industry dynamics, our competitiveness of the industry within in iOS, replacing BP.
So we don't see any change.
You look I think there's a lot of reasons that transaction took place you know I think any OWS will be a good steward of the business and and you know why they have an interest in expansion I also don't believe it these margins anybody's going to be interested in investing in these businesses a at least that this level of margin.
Very helpful. Thanks, so much Laurie.
Thank you. Our next question comes from Ghansham Punjabi with Baird. Please proceed with your question.
Hi, good morning, everyone.
Morning downturn.
Yeah. So Lori just wanted to follow up on some of your recent comments.
Hey, just kind of stepping back over the last three years in particular, you know the futile chain has done has been very opportunistic and kind of flexing its global network and optimizing margins along the chain of molecules I guess the question is our other opportunities going to be as plentiful in a diminished sort of global demand growth scenario, where there's considerable excess capacity as you.
Wanted out.
Yeah, well you know we as we've said before I mean, we really think our assets still model is unique it's unique in the breadth of the portfolio in terms of going all the way from up methanol that way now to Redispersible powders and is unique in the fact that we have.
Three very to think Ral.
From raw material to induce products that do and you know in different geographies and that gives us a lotta optionality that others in the industry just can't replicate and so we think that opportunity can to continues through every every scenario going forward.
Look at Tils will tend to grow at the rate of GDP, we tended to maybe even outpaced that a little bit given the optionality given our focus on end use customers and some of the derivatives in the I still chain.
So I don't see that changing going forward.
Yes, we think Gasfields continues to be you know a high margin business you know maybe considered a commodity products that we do not operate it and the commodity way.
Okay. That's helpful. And then just kind of thinking through the past few months I mean, obviously, the pandemics impacted each of the major regions differently, just looking through the lens of selling these other western regions recovering in line with you know maybe what you experienced in China or is it still too early to tell.
Yeah, I think it's a little too early to tell I mean, China has had a fast as fast recovery within China I would say what has not fully recovered yet in China is exports from China and you may recall last quarter, we called out one other things were looking for on recovery is when do trying to export.
Get back to previous levels, because that's a good indication a western hemisphere recovery, so starting to see some export again, but clearly not up to full level. You know I think the U.S. were seen you know we saw a pretty good signs of recovery, especially in auto.
You know how sustainable that is what I think we'll have to see what happens with co bid and we do we see the economy continue to open up we see it start to contract again I mean, that's our concern going forward I think Europe bid a little more sluggish initially, but seems to be coming out of cobot a bit stronger so maybe we see that content.
So I think it is very mixed by region, both at the pace and also both about the certainty in the future.
And I think we continue to watch the same things were looking for signed the western hemisphere recovery, a lot of which can be measured by what our exports during in China.
Got it thanks, so much.
Thanks.
Thank you and the next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you good morning addressed in engineered materials, what where volume is down in June and how they trending year over year in July.
Yeah.
So I you know I would say June volumes were up actually up from May and July is up from June and August is trending pretty consistently with July.
At this point, we don't really have any visibility at this point at this point on September, but but you know it. He said he monthly good progression from May through July.
Yeah, David that day for the quarter in Q3, we're kind of looking at 10% to 15% down year over year. If that's helpful. And you know it's a little different typically August we would see volumes come down versus July we're not seeing that dip in the order book just given.
The the differences that we're seeing this year.
That's helpful. Thank you and just Laura you mentioned him Encino, having a big earnings decline in Q2 due to the low oil prices.
They've come back a little bit so how do you think about it just seems earnings in the back half year, a little bit higher oil price.
Yeah. So we look we did see everything they come down in second quarter due to low oil prices again, even seen as the quarter delay so that all low oil prices in Q1, obviously those low oil prices continued in Q2, which we will now see show up in our Q3 earnings and then you know Q4, who knows.
I would hopefully a bit backup as we start the oil going up again.
Very good thank you very much.
Thank you. The next question comes from the line of Frank Mitsch with FERC excuse me Freemium Research. Please proceed with your question.
Thank you so much I appreciate some of the commentary with respect to the second quarter and a circle I was wondering by could get a little more granular in terms of the monthly progression that you saw through you know through the second quarter and how as July actually even been coming in in terms of your volumes.
Yeah, So I mean for both E M and for Alcatel by I would say you know we the same trend is true I mean, we definitely saw.
July being stronger than June and we're seeing August coming in pretty consistent with July both in terms of volume and margin.
Andy The fact that August is coming and consistent with July would be a more positive than you've seen in prior years is that correct.
Yeah, no that's right because usually we see the impact, especially in Europe have extended vacation period, and we are anecdotally hearing some workplaces in Europe are not shutting down in August like they typically do because they've already been down for so long and so we think that pulling through in a bit more strength in August than we typically.
Very very helpful and you suggested that the industry operating rates in the second quarter for acetic acid. We're in the mid Sixtys and bandwidth in the mid seventies during the second quarter, where where are those numbers now.
I you know they are significantly moved from Q2 in terms of overall global operating rate.
Thanks, so much.
Yeah.
Thank you. Our next question comes from Iran, Viswanathan with RBC capital markets. Please proceed with your question.
Good morning, Thanks for taking my question I'm, just curious you talked previously about the opportunity.
For about 50 cents from productivity for our supply chain investments as well as 50 cents from buybacks could you just update us on you know the possibility of realizing that over the next year and a half or so.
Yeah, I thought you know I'm completely confident our ability to achieve that 50 cents from productivity I'm, you know year to date, where I had 135 million.
A productivity that so two thirds of the way already to the 200 million target that was associated with that 50% that 50 cent I'm. So you don't feel very confident we'll get that 200 million just just to put in perspective, where that comes from so about a third of that productivity comes from optimization.
One of our footprint another manufacturing optimizations about a third comes from raw material and logistic productivity and then about a third from revenue optimization, S. DNA and kind of everything else. So given that it's a very balanced way, we get productivity you know completely comfortable will achieve at least that 200 million dollar target.
And you might recall, we also have another $30 million to $40 million, a onetime cost saving in 2020 that we expect to get this year, which will be even a bit more help. So you know things like travel reduction additional manufacturing savings associated with slow down the shutdowns and corporate functions et cetera.
So you know feel very comfortable at 50 cents I mean, the 50 cents share buybacks you know clearly our balance sheet is in a good position right now and so you know we feel like.
Yes, certainly achievable, but let me hand to Scott Yeah. So, Iran. We you know we did a little over 100 million in the first part of the year, which will get us some of that we announced 500 million as part of the probably plastics deal, which will make that an accretive transaction. So we'll get a little bit more from that and then you know.
You've got the balance of the 800 million from that deal that will be deployed either through M&A or additional repurchases into next year. So between all of that you know we should exceed that 50 cents that we had originally called out as we get into the middle part of next year.
Great Thanks and.
Maybe just get your perspective on a acetic and VAM pricing as you go through the the rest of this year and maybe even in next year I mean, I'm is it fair to assume that there's going to be limited opportunity. There I'm, just given low operating rates and yeah, maybe methanol remaining relatively low as well.
Are you looking at kind of overall pricing opportunities in a sea change that's.
Yeah. So I think a if we look at the entirety of the chain I think.
I think will tend to move with broad I think we won't see a lot of margin compression, but I'm not sure given the low capacity utilization will also see a lot opportunity for margin expansion I'm. So while we may see Mart pricing go up I don't you know as raws, if if raw go up I don't think we'll see a lot of additional mark.
In there I think there's probably a little more opportunity in Bam and downstream of the city gas. It as those said have slightly higher utilization is already and especially now as we move you know remain in a strong construction season through Q3, there may continue to be some opportunities there and pricing, but again as we move into Q4 that.
The fall off the bat.
Okay, great. Thanks.
Yep.
Thank you. Our next question comes from William Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, laureates its Matthew Blair TPH I was wondering how your how you're thinking about free cash flow targets for 2021 point, you're aiming for about 900 million than cobot should it be your slipped $418 million year to date Gulf outlined the extra 400 million of Tailwinds from things like productive.
I'd and lower Capex. So do you think something like I don't know 1.0 to 1.2 billion of free cash flow. In 2020 is is a good range.
No I look we've previously you know before co bed, we were looking at a range of $800 million to $900 million of free cash flow as we went into co bad we obviously clearly been fixated on free cash flow and making sure. We take steps to just try to preserve free cash flow you. We did I do.
By the 400 million that you referenced of additional steps, we can take on free cash flow, but again, we've also had a pretty large EBIT decline associated with cobot volumes and margins. So you know, we still think where that given our strong first half performance that we will be north of the 800 million dollar mark on free cash flow.
That we had laid out earlier.
That's helpful. Thanks, and then the released noted that turnaround costs in 2021 would be meaningfully lower can you share any numbers around that and in particular any details by segment.
Yes, so on turned around.
We will be meaningful lead lower in 2021, if you look at where we are you know earlier. This year again Rico bid, we thought turnarounds, who are in the $70 million to $80 million for 2020, we've now pulled into Frankfurt Palm, which is 20 to 30 million. So you know this year our outlook.
Total outlook for turnaround will be in the $90 million to $110 million range in 2021 that goes back to $20 million to $30 million.
And I would that 20 to 30 million is pretty evenly split between M&A C.
Thank you.
Thank you. The next question comes from John Mcnulty with BMO capital markets. Please proceed with your question.
Hi, good money or this is Bob mentioned, the diet, but John.
Oh.
Most on your commentary for the Pope quota so it looks like.
Eventually EM is expected to see strong growth and then the rest of the segment it'd be more balance their own owned pluses and minuses, So safety add the $60 million EBIT or so.
Yeah, and keep the rest unchanged from sequentially to collaborate we're looking at call it $60 million EBIT for the next quarter. So so the question is is it does take photos that are all this money back no surprises in Baghdad, but are there any other moving pieces, which can cost is targeted to move much Sidoti.
Yeah, you know so we are really suggesting for Q3 you'd be or the recovery will be any we expect to recover about 50% of the decline. We saw Q1 Q2, we expect to recover going back into Q3, we also get some help from not having a bishop Turner.
Around in Q3, but that's offset by some further declines in it but Evan Sina and again, an AC until we expect them to be relatively flat with Q2 performance.
Got it and then.
So to the 2021 common so you mentioned that you expect demand growth or bought 2021 to be beyond Gray 1911 is the implication that you could see higher earnings as well in 2021 work is 1911 or those pricing and other other headwinds remain kind of like a big unknowns.
Yeah. So I think you know for weeks, but you know for AC demand levels, probably similar 2094, yeah. We would expect assuming that to some demand trajectory continues levels similar to 29 heat with maybe some upside due to.
The project wins that we are having this year in fairly robust sectors like E. B like Fiveg like medical that we think they give us some upside next year versus 29 team.
Yes, I wish I think the timing of when we see the full recovery will be that will be kinda determine exactly where the overall annual earnings and if you know we finished this year and start next year. It demand levels similar to 19, beginning the year. Then then yeah I think that that's a decent assumption however.
You know if we see you know things still kind of ramping back to those levels. As we began the year getting you may not get to that level till somewhere in the middle part of the year. So they're just the level of visibility we have still too to where we'll see that recovery when we'll see it get back to those levels is still little bit uncertain.
Got it go to spend millions Scott.
Hey, just be we'll go ahead and make the next question the last one for the call.
Thank you. Our final question comes from the line of Jim Sheehan with Suntrust. Please proceed with your question.
Good morning. Thank you can you comment on acetic acid inventory levels in China and also the reports of high water levels on the Yangtze River impact new shipments from Nanjing are you seeing any shipment delays because of this.
Yeah, so inventory levels generally globally are reasonably low for the gas. It I mean, there has been some build in other products made from the asset in China associated with a lack of exports. So we have yet to be how that play out I will say on the AC we have.
Not seen any impact at all to our operation.
Okay with high water levels are otherwise, we've not had any supply chain problem.
Thanks, and can you comment on political proposals to raise the U.S. corporate tax rate to 28% how much impact might that have on your effective tax rate.
Got you know Jim we're still working through those and you know I think it's really too early to say you know obviously, we have a pretty global network and so you won't see it straight.
Flow through to all of our earnings. So you know we will will continue to look at that and a lot would depend upon where demand levels are Broadway from a global perspective.
Thank you.
Thank you know we have reached the end of our question and answer session call I'll turn the floor back over to Mr., Paul for any additional closing comments.
Alright. Thank you Jesse we thank you for your question from listening in today as usual we were available after the call for any further questions you might have Jesse feel free to close out the call at this time.
Thank you ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation and you may disconnect your lines at this time.