Greetings, and welcome to Celanese First Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to turn the conference over to your host Chuck Kyrish. Thank you. You may begin..

Thanks Rob. Welcome to the Celanese Corporation first quarter 2019 earnings conference call. My name is Chuck Kyrish, Vice President, Investor Relations and Treasurer. With me today are Mark Rohr, Chairman and Chief Executive Officer; Scott Richardson, Chief Financial Officer; and Todd Elliott, Senior Vice President, Acetyl Chain.

Celanese Corporation distributed its first quarter 2019 earnings release via Business Wire and posted a slide presentation and prepared remarks about the quarter in the Investor Relations section of our website, yesterday, after market closed. Today's presentation will include forward-looking statements.

Please review the cautionary language regarding forward-looking statements, which can be found on Slide 2 of the slide presentation and an important information. We will also discuss non-GAAP financial measures today.

You can find definitions and other important information and reconciliations to the comparable GAAP measures on our website in the Investor Relations section. Form 8-K reports containing all these materials are also available on the SEC's EDGAR system and our website.

Because we published our prepared comments yesterday, we will now open the line directly for your questions..

Thank you. In Engineered Materials the affiliates underperformed the wholly owned operations. There's obviously some big regional differences between wholly owned and affiliates.

But could you remind us with some of the application in plastic mix differences between the two?.

Yes, John. This is Mark. I'll start that maybe - maybe I'll start, Richardson could add some comments. But we did see our affiliates struggle a bit in the quarter. I think, the real issue there is that - trying to say product we're at are the global reach that we do primarily in the China and some limited application.

So we continue to work with them to - to see if we can help them improve that performance..

Yes, John, just to add a little bit more color. If we look that on year-over-year basis, obviously the entire decline in the equity earnings in terms due to probably plastics affiliates and really is - as Mark said largely related to the demand in China..

And then, can you remind us how much you paid for the Linde syngas unit or is that going to be in the cash flow statement when the queue comes out?.

Yes, it is. It's lumped together there, John. We haven't said exactly what that amount was. It will be in the cash flow statement with our Next Polymers acquisition as well, is a very low capital, kind of optionality type investment that we made, which we commented on last quarter..

The next question comes from Mike Sison with KeyBanc Capital Markets. Please proceed with your question..

Nice start to the year. And Mark congrats, and hope you have a lot of fun things lined up going forward.

But I guess, I wanted to ask how Laurie's role will differ from yours, if any, and in terms of focusing on extracting value for the company and given your portfolio businesses?.

Sure, Mike.

You know, this is pretty well, and the thing about Celanese is that we have a great, great business machine out there that brings a number of opportunities to us and the ability that machine to bring opportunities actually has the capability to overwhelm our internal mechanisms, being the unit operations, being the logistic systems and processes, ability to innovate as fast as we need to.

And I spend a lot of my time on that and I'm sure that Laurie's going to spend a lot of her time working in those areas. We think in many ways it's the next frontier for Celanese to learn how to go from 20,000 FTEs to 30,000 manage that better than we do 20, is going to be a big part of us continuing to drive - drive value going forward.

So, I think that's a major area of focus for us.

The second one I would say is that when you look at the opportunities before, as you know, deploying cash continues to be the main focus of - my main focus and will be hers as well, and we have more and more opportunities surfacing and be a reality for Celanese, which would be a big part of unlocking shareholder value.

So, I'd say those two things are top of mind, but you'll get a chance to meet her soon and ask the same questions..

And in terms of your outlook for 2Q, you noted that it should look similar to 1Q. But it does sound like the Acetyl Chain industry happening rates could improve.

Now given out as you noted in your prepared remarks and then, and I guess thoughts on energy materials, your outlook still looks for good organic volume growth given project wins and just wondering what maybe headwinds that you see in 2Q that you wouldn't see a normal, say, improvement sequentially?.

Yes. Well, good, I'll start that, and I'm sure that Todd and Scott will add some comments here. But let me - one of things that's not readily apparent is internally the things that we deal with. So in Q2, we have a number of turnarounds in front of us.

Those turnarounds will cost us $25 million, or $30 million, they call it $0.15 to $0.20 of headwinds baked in there. We're expecting raw materials - probably seeing raw materials in methanol to go up. Those kind of things that net, net record for another $10 million.

And John asked a great question on affiliates and we see that affiliate number sliding a bit further. So before we even started this quarter, we've got at least $0.25 of unusual headwinds that we didn't have the first quarter of the year are quite strong in the first quarter of the year.

So, I think on one hand, it's easy to say, well, life will be good you built in this point. I think the first half of this year is going to be a struggle. And I think maintaining numbers in the flat is a push for us. So I'd certainly wouldn't recommend anyone go higher than that number for the quarter. I just don't see that right now materializing.

If I take a stab at EM, quickly, yes, we're pushing price really hard and we're pushing our mix really hard and the repercussions of that will not be that great as long as business starts to recover. We don't expect a full recovery in EM to start until more than second half of the year as well.

You look at that in auto bill projections those things we're still down the second quarter. We should start some rebound going in the third quarter.

So our fundamental belief as Mike is that we've got a bit more grant here before we get into the back half of the year where things should be starting to improve, but Todd you'll make some comments on AC this quarter..

Yes. It's not only regarding acetyl, and we actually had a pretty good March, as we wrapped up Q1. Most of our - almost 40% of our business occurred in March, as we look at that profile. So we ended on a pretty good note as we wrapped up Q1.

As we get into second quarter, Mark mentioned that Celanese has turnarounds, but it's pretty typical for the industry to have turnarounds during the second quarter. We've got turnaround in Bay City, Texas headwind and we've got to navigate around. We've got a fantastic network to do that with.

I think a bigger issue right now is series of safety checks and audits following its provision in Yancheng and Jiangsu province at the end of March, that's put - properly a damper on operations throughout the province. So that's affected some of the downstream demand to start the quarter.

So we got to see how that unfolds, but we'll certainly activate our network around these things and try to deliver the quarter kind of in line with Q1..

Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question..

Mark and Todd, you guys have talked in the past about maybe some of your competitive - competitors in China being subject to maybe a little bit more discipline and enforcement does this pace in your expectation of seeing some capacity out in China and maybe tightening operating rates even sooner and for longer?.

And again, I'll start with some Tom about specific color on some of the closures and stuff that comes from industrial parks. Bob the movement in China is fundamentally one in my personal view is of driving inflation.

And if you think about that, the economy needs higher pricing to get a decent return on the over investments they've made for a long period of time. So when I kind of worked through that, myself what I see them doing is putting pressure on the 150,000 or so state run enterprises they are continuing to lift those earnings there.

So that means environmental restrictions are going in, that means safety restrictions, and you've seen those sort of occur episodically. So we've gone through a period of safety events it seems like every six months and nine months and they continue to ratchet the impact of that and they're directing now.

We are very public about the number of closures of chemical parks that are going to occur directly with that they will impact some of our competitors we think. But Todd do you want to carry on with that..

Yes, I mean, just a specific follow up on this, the situation in Jiangsu. So remember before we talked about other provinces going through steps to examine environmental policy that continues, but in Jiangsu, we had not yet seen anything specifically around park policy.

So what we're hearing have not see anything published yet, but we're hearing that Jiangsu will reduce the number of chemical parks from 49 down to 20, starting sometime in 2020 forward. How that ultimately is laid out and executed and started it remains to be same and the specifics remain to be same.

But that's a significant development, a key set of step following this tragedy in Jiangsu. So that's probably the most impactful in our space. We've got to watch that. So think about where parks are near the Yangtze River or close to population centers and that gets more specific in terms of details we'll share that..

Yes. And the only thing, I'd add to that Bob is, yes, it impacts our competitors, but it also can impact our customers too. And so there is kind of I would say a near-term demand impact of - on our customers as well as we see these audits and scrutiny continuing to ramp up..

Yes. Just to follow that.

So the specific kind of watch out downstream in CAA acetic acid, acetate esters, pharmaceutical intermediates kind of whole host of downstream applications are slow as these safety checks unfold and inventory levels are brought down probably the one bright spot would be terephthalic acid over the PET, that's held up pretty stronger in this period.

But to Scott's point that, that's put a damper on April, but we'll see how that unfolds here as we get them..

Can I ask an EM question, Mark it seemed like maybe over the last few quarters you guys have been working hard on getting your price to offset raw materials.

And I suspect towards the end of last year, when oil went down maybe some of your customers not only were destocking from macro fears and trying to tighten up their inventories, but also maybe hoping they'd see some relief on price oil. We've had oil rally now.

I wonder if you give us a sense of where you see customer inventories destocking, restocking or ability to defer purchases in light of volatility in pricing?.

Well, there was - you call that right, Bob. There was definitely destocking going on as people wanted to had a view generally that prices will not come down and of course we rallied in the right kind of way to continue to drop higher prices through that period of time.

So we're now in that kind of aftermath of that and waiting for a fundamental demand to pick up, which it seems to be in some areas, but again it's a bit too early to tell with that.

As it relates to pricing Bob, what we've really done is, yeah, generally you've always make sure you look done as we went out and starting last year did just had a really hard look at where we were adding the most value and where we felt we were impacting customers in the most important way.

We want to make sure that we're getting - our shareholders getting the right compensation for that. So we were very directly with pricing into those areas where we felt that the value was really being brought by selling these and applications and the molecules we had. So that approach is still ongoing and we don't intend to move away from that.

You've asked me in the past, do we lose volume we do that? The answer is, sure, but we're really looking at a way to drop money. So everything that we do relative to pricing and if we elect not to participate on volume is a thoughtful process we go through to try to maximize the value back to our shareholders..

Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question..

Mark, would you expect EM volumes to be up year-over-year in Q2?.

I don't know.

Scott, you have a view on that?.

Yes, I think we're going to be flattish, David, right now. I mean, we're still working as Mark just talked about. We're still working the price equation very hard. The one thing that is going to change probably slightly from Q1 and Q2 is, we'll quite have a little less destocking that occurs. I mean, it takes a good six months or so.

When oil fell as hard as it did for that to kind of work its way through the value chain. And while our volumes were down year-over-year, and in the 3% range, a lot of our customers that we've talked to were kind down more in terms of 10% to 15% rage.

And we were able to offset that largely through the new project winds that we had and started to flow through in the quarter. So, I would say at this point we're kind of looking at flattish..

Okay..

Yes, at least from the discussions I'm involved in daily on this, really is China. China, if you look at projections in China, there was the view that in this quarter they'll start digging out of the hole that all those in China.

And start that recovery down mid teens, sort of number in the first quarter, down less the second quarter and then actually be positive the back half of the year end up down 3% or 4%. So that has got to starts happening. If that starts happening we're in good shape.

Let's say, it doesn't happen then you may see a little volume weakness as we go through this quarter..

And Mark in yours and Scott's comments, you mention actively considering strategic transformational options for your businesses.

Has anything changed of late or have discussions picked up recently to drive these comments?.

Well, I think we have, when I look at the bolt on this except that for a minute we're seeing the size of bolt-ons increase and those are opportunities, does that make sense.

So we're working a few now that would be in that $30 million to $70 million of EBITDA kind of range to $100 million where we've been doing that deals that have been sub-30 in EBITDA. So that's encouraging for us.

We continue to work hard to position Celanese to be able to take advantage of transformational opportunities and that's a big personal thrust of mine. So as Lori comes in and takes over the CEO, I'm going to be devoting myself to that along with Lynne Puckett under General Counsel.

So we'll be working as hard and we're optimistic that this deal - this year unfolds more opportunities come available and we'll work hard to see if we can capture one of those elements..

Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question..

This is Angel Castillo on for Vincent. Just a quick question for me on - your comments on VAM, in terms of focusing on one VAM with also the Western Hemisphere and your ability to someone in this area. I was just curious because my understanding was that at least on the U.S. incremental down would likely be exported.

So just in light of your expansion and again the comments on the Western Hemisphere, I was wondering, if you're able to sell your capacity in the U.S., or the particular factors that facilitated for you to be able to sell in the region?.

Yes, let me start that Mark. Yes, the expansion in Clear Lake, which we brought online in December of last year. So we added 150,000 tons of capacity, that's a key value step amongst several that were underway with an asset yield.

And so the work around that started way before the plant ultimately was commissioned and that was to position our business in the most sort of attractive way as we think about contract mix around the world, good customer growth and mix around the world.

So, yes, we did shift some of our profile a little more to the Western Hemisphere following that startup. So again intentional stuff keep of our value enhancement efforts and that continue into 2019 and beyond..

And then in terms of your comments on China, you mentioned the high inventory obviously continue to work on the acetic side. Just curious - your thoughts take for the industry to work out of that inventory.

And then also just in regards to your comment about slow start to April, I know, if you can give us more color or that just entirely related to the plant explosion or where there other things that you're seeing and that is perhaps causing more of a slow start?.

Yes, I mean, there's lots of trade question mark those process. But I think the main event follow the explosion in the subsequent audit and focus on inventory control throughout the country that are really just more specifically in the province of Jiangsu.

So that's what we're watching and like I said before we had 40% of our business in Q1 happened in March, we thought we were starting to dig out of the softness at the start of the quarter. So I would point to that, point the derivatives acetic acid.

I mentioned three before those are probably the ones to watch and that linked to the inventory bill that we saw in the quarter..

Yes, so there's still adequate inventory. We think it's working its way down, but it's not down yet, if that was an attribute question. So there's still plenty of - there still excess material out there. And I think that needs to be resolved the way it will be resolved the China's economy needs to pick up a bit.

It will pick up whenever there's a trade agreement in my opinion. So I think, we saw that trade discussion going on March, we saw business pick up the China's result of that, explosion and it slows back down again. I think there's still this waiting aspect going on personally going on in China.

So hopefully wouldn't get that resolved in the next month or two. I think that would be good as we enter the second half of the year..

Yes, and the other piece is the turnaround that I mentioned before. So in addition to ours there are multiple industry turnarounds in Q2, so that will play a role in the inventory dynamics as well. We count something like 17 of the 36 acid plants will be in turnaround in Q2.

So many of those are in China, but that'll have a - play a role in the inventory dynamics..

Our next question comes from P.J. Juvekar with Citi. Please proceed with your question..

So question on - my question on acetyls, last quarter you announced rationalization of acidic capacity in Asia. And then you announced expansions in the US of VAM, acid and now methanol. So it seems like you're moving production back to the US, presumably because of the energy advantage here.

So is that true and will you be exporting some of that material back to Asia?.

Yes, we know that, that's definitely, yeah, that's exactly what we're doing. When you look at the economics of that is pretty profound for us.

The assets we have in China, or in Singapore, higher costs than the asset base we have in Europe and not only is that higher costs, if you look at, it's just the strip today for nat gas of five years or six years. We just roll that out. You can see that variability lasting for a very, very long period of time.

I just meant economics of the day that this shows how solar power is actually offsetting the incremental gas being consumed for utilities in the state of Texas. I mean, so we have this low cost energy base here on the U.S. Gulf Coast is pretty phenomenal.

And that the moves we're making really are moves to as tight as says it much better than I can, a step result from that base of let's say $800 million is going to trough earnings level for this business back up above $1 billion, about $100 million over that locked up in the acetic acid front primarily productivity just associated with that switch from Asia to the U.S.

And then you add on top of that incremental methanol incremental VAM those kind of things. All those contribute towards again without any change in the basic business closing that gap gets you back to $1 billion and of course $1 billion beyond goes from that. So, yeah, that's what we're doing. So most of that material will end up offshore.

The demand in U.S. is not really increasing..

And then post all these expansions in the US, how integrated would acetyls be with your EM business. And how quickly can Scott separate these two businesses, if you decide to take any strategic action on any of the pieces? Thank you..

Yes, the business are not - there's organizational integration that has to be separated and there's efficiencies associated with a single instance of SAP and those kind of things that you have to work through with some tax - things you have to work through.

I think once before we talked about the penalty associated with that of being well north of $100 million per year so-called $1 billion of negative net present value. There's been a lot of work that Mr. Richardson has led over the years and we really dramatically dropped that down. Maybe it's $50 million for that. And we'll continue to work that down.

But I think we'll get it to a point where should an opportunity arise that would facilitate a value creation step that way, it would be certainly possible without that kind of huge negative consequences that corporations often see when that happens.

At the same time, we're seeing investment opportunities and they see we're being very thoughtful with those, every one we're doing is incremental at very, very low cost. But certainly it's getting to that point where it could do something else, we could do something else where that could make sense for that organization and for our shareholders..

Thank you..

Yes. And I mean depending on the deal, P.J., that we do if we got to that point, it's probably kind of a 6-ish month process for us to get something pulled off..

Our next question comes from Duffy Fischer with Barclays. Please proceed with your question..

It's Mike Leithead on for Duffy this morning.

On asset yields, first, I was hoping maybe you could remind us what your backwards integration into methanol would be after the recently announced methanol anesthetic acid expansion? And, second, is it fair to assume with your methanol expansion announced that a potential investment in second methanol unit is off the table right now?.

Yes, I'll do one. I'll start and you can add to that. We've talked about roughly a 50:50 balance make/buy, and that includes as well our affiliate investment in Saudi. But the profile in the Americas is, of course, more heavily weighted towards make as we think about the methanol unit, our derivatives in the Americas.

But this will nudge us up a little bit. We started that unit back in '15 with an original design nameplate of about 1.3 million tons, now we're looking at 1.7 million tons once these expansions are finished. So low cost, great returns on capital, also allows us to do some things in support of our integration here in Clear Lake.

The acquired carbon monoxide, which we talked about before. We have the expansion around the corner with acetic acid. So all that adds to our configureability options there in Clear Lake..

And, Mike, as I would say with the cross point, we could be full in the United States and we're totally integrated and it would be to our advantage at that point. So there's still room to do that, beyond the 1.7 million tons, down the increment that we've pushed out with this last expansion. So, yeah, we've got great partners in hand with Mitsui.

We have other friends in industry, we'd like to do something with it. So we're certainly not - it's the top thing on our list today, but it's something we continue to evaluate and look at, and we'd be willing to take that step with the unit economics where it really makes sense to our shareholders..

Yes. I mean that's the important point. If we focus on high return investments and for things like methanol, it's got to really make sense from a return perspective.

And when we did the plant in Clear Lake a few years ago, just as a reminder, we got 50% of the capacity for less than 50% of the capital, given some of the assets we were bringing there at the site. So, we continue to look for advantageous investments that are going to be really opportunistic for selling..

And then, I guess, just following up on the return element, you talked about superior returns in organic - or sorry inorganic investment for Celanese, I was hoping maybe you could touch on the relative investment opportunity set between the two businesses, EM and asset yields, either in terms of higher returns for either business or just a broader opportunity set for you guys today?.

No, we've been very clear in both businesses.

We really target greater than 20% returns on investments and we don't really look at either one definitely from that perspective and a lot of what we're doing - in asset yields, we've talked at length about focusing on the opportunities in the Gulf Coast, for incremental investment that really justified with productivity.

And then in Engineered Materials, a lot of these are really incremental capital. So we're putting compounding lines in for Engineered Materials. It generates a lot of value that is paying back in a couple of years. So, that's really where we're prioritizing our investments right now.

I think we've said we got kind of nine projects or so going right now in Engineered Materials from a capital perspective, all of those are pretty small when you look at each one individually. But as a collective program, it's pretty sizable with, again, a return profile that's better than 20%..

Yes. I think the next generation for us too in EM is going to be to restructure our power base to better fit the consumption demands that we see in the future. So, right now, we're very heavily U.S. and European based in our base polymer production and we're seeing continued opportunities in Asia.

We see that growth quite dramatically, which we currently satisfy from the U.S. So we think there's a whole new round of opportunities that are surfacing and will be part of the new three-year plan to think that we talked about. We'll make those investments out there and Todd's just talked about some of these.

So we do believe that our investment opportunities are getting greater as we grow this company and I think it's pretty evenly split between the two..

Our next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question..

In Jiangsu, over a longer period of time, do you worry that environmental constraints may either close your capacity or limit your capacity in some way or limit the capacity of your suppliers, your customers.

Do you view these environmental efforts over a longer period of time as a clear positive or a clear negative or neutral, you can tell for your business there?.

Well, Jeff, that's a great question, yes. So when we - first off we're in the Nanjing Park and it's considered one of the top two or three parks, maybe the fourth most favorable park in the entire country. So it's a very good park, it's well managed.

The role that companies like Celanese play there and BASF and others as we partner with the politicians really to support their move to become more focused on safety, environmental stewardship.

So we play a key role and really helping them put forth the kind of regulations and protocols we have as a corporation and the other multinationals do on that park and on organizations that work there. So that relationship is really positive. So could it end appropriately for a park like that? I suppose it could.

But what we do is pretty unique and I have a hard time believing that anytime in the near future it represents moves to improve China really represent a threat to that park or a real threat to our asset base there.

When you get out beyond let's say a park like a big industrial park like chemical park like Nanjing, you get to a lot of industrial parks. Industrial parks don't run that way. They have lots of mom and pop or smaller operations there and those are the ones that seem to be feeling the most pressure now.

So I think it's really more customers that could be impacted as time goes on, in every going. And right now we don't have a way really to assess that. But it's something we're going to keep our eyes on..

Jeff when we started planning for that site 15 years ago we really tried to build it both from our own construction belts or upstream gasification suppliers construction with an eye towards the future. So if China had an environmental regulation very similar to what we see in the western hemisphere that's what we built for.

And so it's not to say that to Mark's point that you couldn't see some crack down possibly in the future but we really did built that plant with an eye for the future..

And in Engineered Materials, is there a few percentage points of volume growth from acquisitions in the quarter year-over-year.

I don't know 4%-- 3%?.

There was a little bit - there was a little bit from next that rolled in this quarter versus last quarter year-over-year. .

Again it was pretty small. Jeff. I mean was that --it's more like 1% to 2% is probably in there. So as I talked about earlier, year-over-year when you look at on a straight volume basis it was 3%. What we're hearing from our customers and their demand is down considerably more than that.

So you know if you pull that acquisition, roll that through there’s more kind of – base, base is probably 4% to 5% down. We feel pretty good about that given the environment that we were in that we were able to offset that with new projects..

Our next question comes from Ghansham Panjabi with Robert W. Baird. Please proceed with your question..

I guess first, you know on going back to the first quarter results sort of relative to your initial guidance at the time of the 4Q Earnings Report.

Well, what truly surprised you the upside in the first quarter and then related to that Mark, in your prepared comments you mentioned confidence and an improvement in China and just broader underlying demand. Is that embedded in your reiteration of guidance for 2019, I am just trying to clarify..

Yes, so what I would say is that we guided pretty flat – we were starting the year very, very slowly and so we were focused solely on what we could bring to the table.

And so what I was pleased about is that we brought a lot to the table through the incremental productivity, through incremental sales, through mix shift that occurred in our portfolio and sort of work that went of that and you add on top of that a stronger March than we really, do we really kind of anticipate.

So that kind of lifted us up a bit about over that initial kind of view we had. Now entering in this quarter and I've just outlined I think you heard there's probably $0.25of headwinds today that we didn't have last quarter that are real. So we're starting out not at 260, we're starting out more like 230ish.

I mean it's that kind of that kind of spot and we've got a build back into that. What my optimism for the years was centered upon is that I really do believe that China is going to improve as we get into this year and end this year. I do believe it almost seems like the machine is trying to get started only for something and knock it off course.

And we know the Chinese people well. We know that region well and our customers well. So there's a desire for them to do better. And my belief is --is as you get into the back half of this year that we'll see that machine come alive and start to ramp more of a foundation which is not only good for us but good for our affiliates and things like that..

And for my second question kind of going back to the EM segment, volumes down 3% in the first quarter. Obviously, comparisons are much more difficult given a year about size growth in the choppiness in the macro but the trend line is nonetheless weaker over the past few quarters. I guess going back to the 4000 projects guidance for this year.

What sort of visibility do you have towards that number that gives you confidence in being able to hit that? Thanks so much..

Well, I think there remains this overall press to differentiate customers very much want to do new things and serve markets right away. And so what you actually see is you see that trend increasing. The flip side of that is that the numbers tend to start weighing down being a little bit smaller in size because the people are less confident in that.

So we feel very good about the 4,000, we feel very good about their contribution, and that is not a function of us thinking - business itself it's going to get better, the market's going to get better, just the need for customers to differentiate themselves versus our competition..

Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question..

This is Nicholas Cecero on for Laurence. So for Engineered Materials, you mentioned that the projects used in battery separators is expected to double again in 2019. I'm just wondering, if we should expect the current cadence of growth to continue over the next three to five years.

And then maybe you can just size the potential market opportunity here?.

Scott, you want to try?.

Yes. So we do see that trend continuing, that growth trajectory is extremely strong and I mean at the end of the year its probably one of the really good bright spots we're seeing in China.

We are in the process of finalizing the expansion of our GUR Ultra-high molecular weight, polyethylene unit there in Nanjing, which will help satisfy that demand in the near term but we're already looking at what is the next wave of investments because we don't see that growth trajectory changing given the focus around electric vehicles in China and the batteries playing a critical role in that growth..

Our next question comes from John McNulty with BMO Capital Markets. Please proceed with your question..

In the prepared remarks you'd pointed to seven project expansions in the EM segment.

Can you kind of help us to think about the earnings power tied to them and the cadence at which they may come in over the next couple of years?.

Well I'd love to John, I don't have that in front of me, so you should think of all these as being small and being incremental all adding millions not tens of millions of dollars to that process all baked into that push we have to grow this thing $100 million per year which we've been doing in that scenario.

So I think it's - these are small incremental step chains that make us going from 690, up in the 770 or so this year we have that number turns out to be 760 and then up from that into 850, 860 next year. So part of that..

Yes. And it's really what allows it to satisfy the demand growth that we have from the project wins, that we've been very talking about in great detail in the last several years. And so I mean my point is either by this million dollar type project each one of them plus or minus. So we're not talking a huge capital for each one..

And then I guess with regard to M&A you indicated I guess again in the preliminary remarks that the pipeline was strong for both businesses, aside from the syngas unit that you just acquired, I don't really recall a whole lot happening in the – chain, I guess how should we be thinking about the opportunities for M&A there and what types of either assets or ventures you might be considering or looking at?.

Well, we think in that area, there's partnership opportunities there, that are available to us at least in theory on paper.

We have come very close to acquiring businesses that would be derivative like businesses that would fit our emulsions business well in the portfolio of products we sell there well, there's upstream opportunities there that could involve M&A. So anything I was trying to extend that chain laterally and also a back integrating that chain..

Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question..

Mark, could you comment on the size of your investment to expand methanol at Clear Lake by 25%, as well as, the timing of that project?.

The timing, that's several years. I think two and 2.5 years because you've got to do the next turnaround. We haven't talked about the dollar amount but it's well less than $100 million..

Okay..

Yes. So, Kevin, think of the timing similar to the startup timing with the expanded acetic acid. So there's option - there's configuration benefits with both of those units starting up about the same time, there's some recapture on the CO2 side and - hydrogen benefit at the side.

So there's all kinds of integration benefits associated with this and a market point capital of the minimus and would be funded through the venture itself..

And then I wanted to clarify a comment you made earlier regarding potential costs to separate your businesses at $50 million to $100 million.

How did you reduce that cost and as a clarification is it operational cost or is it inclusive of potential tax effects as well?.

It's sort of all the above.

I mean we look at all of the implications of everything from the credit arrangements we have in changing of those arrangements out there, the cost of the SAP systems, now you reconfigure those systems both positive and negative relative to that, people that have joint jobs and we how we deal with men and women like that and ways to take care of them.

So every aspect of that we've looked at and we've got pretty good that the 100 and it's actually a number of higher than we first started looking at that, we saw ways that we can invest money and improve our ongoing operating efficiency to get that number lower.

So our path has been on new productivity to pull that down and we think contemporary number today is closer to 50 for that ongoing impact. And Scott and others are working to even get that lower over time. So that's how we did it. It's not, there's no magic, - there was one thing, there's hundreds of small things that we just had to go after..

Our next question comes from Frank Mitsch with Fermium Research. Please proceed with your question..

Acetate Tow side of the house, the expectation when you - when you offer guidance for the first quarter was that it would be equivalent to the third quarter of last year which was around $65 million, you came in at $72 million. Now I noticed in the slides you talked a little bit about your dividends perhaps being a little bit larger.

Can you talk - at that you also mentioned that business you believe has returned to a stabilized earnings profile.

Can you provide a little more color on what went right there and what should our expectations be for that business?.

Yes, really a quarter-to-quarter, we had a couple of things came in a bit higher than we thought, you know price peaked up a little bit.

There was just some sort of return to a normalized pricing so it's pretty flat year-over-year, but it is improvement quarter-to-quarter, we have some energy favorability with few million bucks in there, spending was down as part of our productivity initiatives came in at those things all added up to some pretty good money and then on top of that equity earnings came in a bit higher, that was a pop up that you saw there.

I mean, it was settle back down in that mid 60s kind of range and we think run out the year, we have to continue look at ways to add productivity, do more productivity on arena and we'll think we'll need you to keep these earnings flat next year but I don't know if that's enough color for you, but I think the business is top performing the way we thought it would and we expect it to be flat as we end this year, year-over-year..

And just a clarification Mark.

Obviously, you indicated that you thought China was going to improve and just curious is a trade deal necessary for you guys to hit that [1050] number or not?.

Well, it's a great question and I want you to please understand that I'm talking and this is a feeling just haven't got back from there recently on in the team and since last time over there. But if you look at the data come out of China, what you see as you see starts and stops of things.

It's like momentum starts to build in something knocks it off course, momentum starts to build something knocks off course, so actually as an economy it's not sliding down. It's already taken that step down. It is trying to recover and there is not a good reason for it to be down.

I mean if you go there you see this I mean it's a thriving economy still today $14 trillion economy it's going to grow 6% that's probably twice the economic contribution globally to the world it is the U.S.

So to me getting that incremental $800 billion or so coming from incremental growth as Chinese economy to be critical not only for China, but it's also critical for the world. So I do believe that for the world to get better China needs to recover. And I do think the jumpstart the economy in China the trade deal needs to happen..

Our next question comes from Jim Sheehan with SunTrust Robinson. Please proceed with your question..

Regarding larger scale M&A is that all in EM, is that all in the engineered plastics area or would you consider other kinds of businesses. And then on Acetate Tow, you once considered a joint venture there.

What's your strategy for enhancing shareholder value from that business?.

So yes, when you look at the bigger deals we're looking that they tend to be more EM oriented and that's a bit of a balance equation. If you look at AC, we have more control on a growth that’s the AC. And we thought we need fewer partners, we have already have a machine and we can I’d like to work with people.

I just do all investments and so they tend to be more EM oriented. That's what I would say there. Yes. As regards to AC, we continue to look ways to try to involve others in that we think that's the right thing to happen over a long period time.

Having said that that business is directionally starting to improve and we do believe that we can get through the next year or two with flat economics. We'll see a period of time without that whether we do a deal or not with somebody else will soon start to get back on course and improve naturally..

Yes. And Jim as we look at deals in Engineered Materials, they have been really are focused on deals in the engineering thermoplastic space. So other materials are similar materials to what we have today..

Terrific.

And how should we think about the earnings left from the 15,000 ton expansion in Nanjing?.

Yes. It could be a few cents on a full year basis. Jim, it's kind of embedded in the projections that we gave as part of our four year plan last year..

Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question..

I'm just real quickly on the synergies you've cited there the 59. Would you like to see that I guess go to break even before any kind of you proceed forward with any kind of action in the JV transaction or our separation? Thanks..

Arun, you were talking about the co-business, or the AC business?.

The AC business..

Okay, yes, I'm - you guys don't like me very much for this comment. But I think you don't make money by just blowing something up, you make money only if you catalyze a unique growth profile. Right now, we have that under way for AC. We're not holding back money for AC.

So I think until we started holding back money from a growth point of view, if the shareholders are getting the full value for that within the portfolio. So, we would see it as part of some catalytic event.

I do believe or if there was a need for a lot more money we willing to put in place then you could rationalize it's the right thing to do to bring in a partner or do something else to try to unlock that shareholder value..

Our next question is from Aleksey Yefremov with Nomura. Please proceed with your question..

This is Matt Skowronski on for Aleksey this morning. I'm just following up to Kevin's question, in the past you mentioned that CapEx in out years to 2020 plus, it's going to be around $400 million.

Is that still a good number to think about, now that you have these expansion projects going on?.

No, it's drifting up and I don't know, I am looking at Scott. I think we've rolled out a number there. But, we'll update that shortly. I think, clearly the syngas expansions in there and that what include originally - so it'll be up a bit..

And then within engineering materials, is destocking limited to autos or were there other end markets?.

Primarily auto..

Yes, auto electronics - probably two biggest where we saw where we really didn't see much impact in our medical business and consumer goods is actually held up pretty well also. So it's really mainly cellphone, other electronics and automotive..

Thank you, Rob. The next participant will be our last question..

Our last question is from Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question..

Just one for me. You mentioned a pretty heavy turnaround schedule in Q2 that also seemed like you had some downtime in Q1. Does this mean that your turnaround schedule for the back half of 2019 is pretty light.

And can you provide any numbers around that?.

Yes, it's pretty light. We have, I think we have EM outage plan in the third or fourth quarter as well. But yes, we tend to like most companies we tend to do more in the second quarter and so, it's pretty normal for us that $30 million, $40 million kind of hit in the quarter..

Ladies and gentlemen, at this time we've reached the end of the question-and-answer session. I would now like to turn the call back to Chuck Kyrish for closing comments..

We thank you for your questions and for listening in today certainly. We're available after the call to address any further that you have. And that I'll wraps this up. Rob you can close this out..

This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation..