Good morning, ladies and gentlemen, and welcome to the Trinseo Second Quarter 2019 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; and David Stasse, Executive Vice President and CFO.

Today's conference call will include brief remarks by the management team followed by a question-and-answer session. The Company distributed its press release along with its presentation slides at close of market yesterday.

These documents are posted on the Company's Investor Relations website and by means of a Form 8-K filing with the Securities and Exchange Commission. [Operator instructions] I will now hand the call over to David Stasse..

Thank you, Kenzie, and good morning, everyone. [Operator instructions] Our disclosure rules and cautionary note on forward-looking statements are noted on Slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations.

We must caution you that actual results could differ materially from what is discussed, described or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, factors set forth in our annual report on Form 10-K under the Item 1A Risk Factors.

Today's presentation includes certain non-GAAP measurements. A reconciliation of these measurements is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the Company's Investor Relations website shortly following the conference call.

The replay will be available until August 9, 2020. Now I would like to hand the call over to Frank Bozich..

Thanks, Dave, and welcome to Trinseo's second quarter 2019 financial results conference call. Before we discuss the financial results, I'd like to spend a few minutes on some of our efforts in the area of environmental health and safety, including two examples of which I'm particularly proud.

Last week, Trinseo released its 9th sustainability and corporate social responsibility report. This release marks the one year anniversary of our adoption of the GRI framework for public sustainability reporting. This framework provides a more global comparability, enhance transparency, and better quality of information about Trinseo sustainability.

On Slide 4, you can see some highlights from our environmental footprint reductions, product innovations, volunteer programs, and most importantly, our safety record. Trinseo safety record is at the top decile of the chemical industry.

We're performing at a level that only a few companies can attain, and one that is significantly lower than the average injury rate for manufacturers and the American chemistry council member companies.

Trinseo includes both employees and contractors and its injury count, because we believe we are responsible and accountable for the safety of everyone at our sites. Our most significant environmental improvement in the report is the 48% reduction in greenhouse gas emissions versus our 2011 baseline on a volume basis.

This was achieved partly through employee led projects to improve energy efficiency through optimization of process and equipment.

This report underscores that the tenants of responsible care respect for and commitment to environmental health and safety and sustainability are paramount to our organization at every level, and in every decision we make.

The second example I'd like to highlight is that Nicolas Joly, Trinseo's Global Business Director Polystyrene was elected President of Styrenics Circular Solutions or SCS earlier this year.

This joint industry initiative is a driving force to take advantage of the inherent circularity of Styrenics through recently proven recycling technologies and partner driven solutions.

Polystyrene is a polymer with unique and proven potential to achieve circularity, as it is the most easily reversed from into its original monitor at high yield, utilizing the emerging game changing recycling technologies. The liquid state of its monomer enables easy purification and the recycled monomer is identical to the virgin monomer.

Therefore, can be processed into Styrenic polymers with identical characteristics and quality, enabling production for all applications, including food contact. Also, from there can be continuously recycled indefinitely.

In July 21, Trinseo and INEOS both members of SCS announced plans to develop the first polystyrene chemical recycling plant in Europe, building on technologies already established in North America between our joint venture America Styrenics and their partners.

Given the urgency of reducing waste, litter and the environmental impacts of plastic waste, SCS has set ambitious milestones to meet these goals and propel the circular economy forward.

SCS is engaging the entire value chain from partners in the supply chain to converters, recyclers, brand owners and trade associations, as well as universities and research centers. Trinseo was proud to be one of the manufacturers leading this initiative to improve the environment.

Now I'd like to walk through a few points from our second quarter results, as well as provide an update on our full year outlook and some of our key initiatives. In the second quarter, we experienced a continuation of the macroeconomic weakness from geopolitical stresses causing trade uncertainty and a slowdown in investment.

Production continues to be weak in the automotive industry, particularly in Europe and China. Margins and performing plastics were adversely impacted as polycarbonate and ABS remain challenged from slower growth and economic uncertainty in China, which are impacting demand for those products.

As we've discussed in prior quarters, these impacts are creating excess supply of polycarbonate, and ABS in Asia, which is then being sold into Europe, leading to lower margins in that region as well. In addition, we continue to see weakness in the tire market, particularly in Europe and China.

On the first quarter call, we mentioned that we have begun to see improvements in many markets in comparison to the second half of last year, which we were anticipating would lead to an ongoing improvement over the course of the year.

However, a market conditions weekend from Q1 to Q2 in styrene, ABS and polycarbonate, which resulted in lower sequential margins in those products. We'd expected to see higher second quarter styrene margins due to the seasonal outage period.

However, due to general economic weakness and lower demand for styrene derivatives, margins declined from Q1 to Q2, due to an upstream supplier issue. We had an unplanned outage at our Boehlen, Germany styrene facility in the back half of the first quarter, which extended through July well beyond our planed second quarter outage.

The plant resumed operations last week. The total pretax impact of this outage on the second quarter was about $12 million. This supply outage and the general lower margin level led to roughly breakeven adjusted EBITDA for feedstocks in the second quarter, versus adjusted EBITDA of $17 million in the first quarter.

On a more positive note, we were encouraged by another strong quarter in polystyrene due to business excellence initiatives. Overall, we've seen better stability in this market compared to ABS and polycarbonate.

Cash generation was very strong in the first half of the year, delivering $234 million of cash from operations, and $186 million of free cash flow. This was the results of continued operating discipline, as well as a more focused inventory management approach, and the impact of falling raw materials in the first quarter and the end of last year.

We continue to have the benefit of a healthy cash position, even after continued share buybacks with relatively low net leverage. As always, working capital management is a key focus area for us, and is especially critical in these more challenging market conditions. Now let's move on to our full year 2019 outlook.

We are updating our full year 2009 guidance to a net income range of $148 million to $177 million and adjusted EBITDA range of $410 million to $450 million. While we've seen some stabilization in our end markets, the positive momentum we began to see in the first quarter did not continue.

This in combination with weaker sequential dynamics, and styrene, ABS and polycarbonate is leading us to remove any meaningful economic improvement from our full year forecast. Given that we are assuming no economic improvement, expected second half volume and margin levels are overall at or near what we've seen in the first half of the year.

Of course, any economic improvement is upside to this forecast. And as always, we will remain highly focused on cash generation and cost containment. It's important to note that we're not just sitting back and waiting for the market to improve our results.

During the last call, I outline some initiatives designed to improve future earnings and to better position Trinseo strategically. First, our acquisition of Dow Chemical's latex production assets in Rheinmunster, Germany, is progressing. We've received regulatory approval, and we expect to finalize this transaction in the fourth quarter.

We expect $6 million of first year EBITDA contribution from this acquisition. Second, we continue to make progress in our evaluation of strategic alternatives for a polycarbonate plant in Stade, Germany. While, pricing and margin conditions in the polycarbonate merchant market have been challenged recently.

The material is still integral to our performance plastic segments as we consume about 40% of what we produce in our higher margin compounding business.

There are a number of options that we are pursuing for the startup facility, with the objective being to maintain a secure supply of quality feed for our downstream compounding business, while reducing our exposure to the merchant polycarbonate market.

Finally, we're proactively taking steps to reduce both fixed and variable costs, as well as placing greater emphasis on business excellence programs, all with the objective of increasing profitability. For example, we aim to at least offset inflation in our fixed costs spending.

Over the first half of the year, we've more than accomplished this, as this spending has been about 2% lower than prior year on a constant currency basis. In addition, we've been managing inventory levels more closely and inventory quantity was down 7% at the end of Q2 in comparison to the end of 2018.

These initial are critical to our business success and have even greater importance in the current challenging economic environment. I'm confident that our momentum in this area will carry us forward as we implement these programs to deliver shareholder value. And with that, you may open the lines for questions..

Thank you. [Operator Instructions] Our first question comes from the line of David Begleiter with Deutsche Bank. Your line is open..

Thank you. Good morning, Frank, just on your revised EBITDA guidance for 10 to 450, can discuss the parameters about the way some of the top and bottom end of those ranges, and just really just how do you risk the bottom end and that range really is? Thank you..

Hi, David. Good morning. I would say at this – one, we have a high degree of confidence in this range. The low end of that range contemplates that, basically, we operate in the second half like we did in during the first half in terms of demand, and margins.

And keep in mind that in the first half, we saw $7 million negative impact from inventory drawdowns that we were doing in the, you know, to optimize our working capital. And we also had approximately a $20 million impact from styrene outages. So we believe we have a high degree of confidence in the lower end of the range.

And that contemplates us continuing basically, at the first half level.

You know, the higher end of the range contemplates that we have no operational issues in the second half that the issues we saw in Stade or in Boehlen are don't reoccur, and that we see some benefit from higher margins of styrene and that we get traction in our business excellence programs greater than we've already had in the first half..

Very good. Frank, just looking at 2020, there is some capacity coming I assume in styrene. What's your expectation for styrene margins next year, and it's early, and early that would be helpful? Thank you..

Dave, hi. It's Dave, I'll answer that. I think obviously, it's heavily dependent on the demand situation. But I think the way we see it now we do see capacity coming later in 2020. All of this new capacities in China, and as you'd expect, most of it has been delayed from its originally announced date.

So the data which is capacity is going to actually come online, it's a little bit hard to tell even now as we approach it.

But you know, I think order of magnitude we'd see probably capacity being coming online in 2020 being a little bit higher than demand growth rates, I mean a little bit high, it's over an annualized, over the annual period, which would put a little bit of pressure probably in styrene margins in 2020, relative to 2019.

But having said that, one of the things we've always talked about Dave is you know the impact that's going to have on guys at the right end of the cost curve, the non-integrated producers in China, which make up a, you know, 40% of Chinese production.

So the numbers I just outlined, don't contemplate any shutdowns from those producers, which we think may very well happen. And that, in fact, could even be exacerbated by the economic situation in China right now..

Thank you very much..

Our next question comes from the line of Frank Mitsch from Fermium Research. Your line is open..

Yes. Good morning. I was wondering if you could step through the pace of business through the second quarter into July, particularly any auto in the tire markets.

What have you guys been seeing so far this quarter?.

Yeah, so great question. Thanks, Frank. When we look broadly across our segments through Q2, what we saw is that while it was lower than Q1. It didn’t deteriorate by segment during the quarter, and remained relatively steady or stable in most of the segments. And we saw that performance continue into July and so far in the order book for August.

So we see it steady during the quarter, and continuing into Q4..

Steady into the first quarter than Q3, correct, right?.

Yes..

Yes. Okay. All right. And then, you are guiding free cash flow 210 million to 250 million.

I was wondering if you could talk about the prior uses of cash and how the share buyback on a factor in?.

Yeah, Frank, it’s is Dave, I think the – we did have a strong quarter in the first half of the year as Frank outline $186 million to free cash flow for the first half. So you can see obviously, that guide implies a lower second half. And it also implies working capital neutral.

In other words fee stock prices kind of staying flat through the second half of the year. In terms of capital allocation, I don’t think a lot has changed for us, I think we’ll continue with the balanced approach that we’ve been – what that we’ve implemented for the last several quarters.

We did buyback a little bit less stock, as you may have noticed, in our cash flow’s statement. We bought back 500,000 shares for $22 million in the second quarter, which on $1 basis, is a little bit less than what we would have been bought back the prior several quarters.

And the reason for that was because we had exhausted our shareholder repurchase authorization limit. So we got that refresh through our proxy process on our Annual General Meeting at the end of June. So we have a fresh authorization going forward..

So we should anticipate that level to pick up from the pace that it was prior to the second quarter, correct?.

I don’t think we want to comment on how much we’re going to buy the individual quarters. I would just say that, overall, I don’t think our capital allocation approaches change from what we’ve outlined in the past in terms of being balanced between allocation between return to shareholders, the dividends purchases and reinvesting in the business..

All right. Thank you, Dave..

Our next question comes from the line of Bob Koort from Goldman Sachs. Your line is open..

Good morning. This is Dylan Campbell on for Bob. So when you first laid out the guidance earlier this year, you included kind of assumptions for the low end of the range, including limited economic recovery in China, continuation of weak tire markets, no recovery in Western Europe, et cetera.

Does assessment now that an absence of kind of those things have actually gotten worse incrementally? And then, I guess as a follow-up with your new guidance ranges seems like the low end of the range assuming things stay relatively the same.

So what gives you comfort that the economic environment won’t continue to get worse in the second half of the year?.

So there’s a number of questions there. Compared to Q1, we did see a deterioration in performance in some of the key sectors into Q2 compared to Q1. And I want to point out that in China, the auto production, declined 9%, from Q1, Q2. And in Europe, and particular German auto exports declined 7%, to Q1 to Q2. So Q2 was a lower level than we saw in Q1.

And also, if you remember, in Q1, we were seeing some uptick from Chinese stimulus and some increased volumes toward the end of the quarter. And those were raised immediately in early into Q2. So I would say where we are in Q2 reflects the lower level than we anticipated, and we started the year with and that’s reflected in our guidance.

Relative to our confidence that it won’t change, again, we have I have a high degree of confidence that if markets continue at the levels they have in our direct in Q2, we’re going to be solidly in our range..

That’s helpful. A quick question on AmSty, it seems like benzene prices have picked up quite a bit, I guess, in July and likely August as well.

And I think you guys talked about lower margins for that segment but at JV, kind of hoping you can scale that kind of margin impact Q2 to Q3 for that business?.

I look, I would say generally, we had, you’re right, there has been the styrene margins, go in Q2, Q3 have dropped a little bit in terms of how much that is that we spread it, out there to move that AmSty’s business, and what they might recover and in the polystyrene inside is probably a couple million dollars..

Okay. Thank you..

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open..

Hi, this is Angel Castillo on for Vincent. Just a quick question, I wanted to clarify the free cash flow. You talked about the deceleration in the second half. And I’m just, I guess trying to understand kind of that that deceleration you mentioned, I think that if feedstock prices staying flat. But and you had a pretty, pretty good, strong first half.

But as I think about, you’re generating at least $200 million EBITDA.

But as I think about that free cash flow, it’s pretty low compared to from an EBITDA perspective in terms of conversion and also just versus prior year, so could you just bridge that for us, please?.

Well, maybe just one comment, and then I hand it to Dave, if you look at the sort of reduction in free cash flow generation in the second half of the year, remember that in the first half, we had a significant inventory reduction. So by volume, we reduced inventory 7% versus the end of last year. So that liberated a significant amount of cash.

And frankly, we’re at levels that are sustainable, given our current demand outlook in their business performance. Now, then doing the walk over to the full year, I’d hand it to Dave..

The other the other thing Angel, you have to take into consideration with CapEx, we do have somewhat of a backend loaded CapEx forecast for this year has really driven by the capital we’re spending for the transition project to move our administrative services away from Dow.

This is a project that’s been going on for – for about two years now, really, and but I do want to highlight so that – so the capital forecast for the last guidance we gave was $125 million. And we’ve spent I think, $48 million year-to-date. So there’s a back end load in the CapEx in the second half of the year.

Now, moving forward in 2020, we’re going to see that the capital for that Dow transition project substantially go away. So we’re spending about $25 million full year 2019 for that project, that’s going to be pretty close to zero or a couple million dollars next year for that particular project..

Very helpful. Thank you. And then just probably, I was wondering if you could help us just internationally.

Could you talk about the inventory levels at just in the various regions, whether it’s in China and how those are trending in the first couple months here for the quarter?.

I think in general – I couldn’t give you precise for reduction levels are where that 7% came out around the world. What I would anticipate it was largely European based because that’s where our biggest asset basis, but we could probably follow-up on that..

Yeah, the only – there’s one inventory metric that is published on a weekly basis and would comment periodically. And that’s styrene inventory held at the China ports really. And the normal level if you look at that over the cycle is about 100 Kts.

On the last couple of calls, we’ve talked about it specifically because it’s been much higher, it’s been well over 200 Kts and in the last quarter call, I think it was around 180 if I remember correctly. So there was a bit of styrene overhang from that their inventory overhang going into the outage season in the spring out of season and Q2.

Those inventory levels are now down to 86 Kt, so below the normal level. So going into the fall outage season when sometimes, you know, historically, we've seen some lift in styrene margins because of planned outages that happen in the fall.

You know, we don't have an inventory overhang now going into that the fall season, which typically is September October timeframe. That's generally the only kind of industry reported inventory metric that, you know, that we would talk about..

Very helpful. Thank you..

Your next question comes from the line of Eric Petrie with Citi. Your line is open..

Hi, good morning..

Good morning, Eric..

We've seen other companies announced that they're focusing on downstream.

So I'm wondering what the Stade, Germany 60%, merchant exposure to PC, how likely is that you could take an increase share derivative downstream compounding capacity to absorb that?.

Well, that would not necessarily be our objective as it relates to State. So when we think about our options, while we want to secure the volumes that we would have in that downstream compounding business, we have discrete projects that we're running and developing with our customers that would be market around market based growth type initiatives.

But clearly, we won't be able through commercial efforts in the short term to be able to absorb that. So our efforts as it State really focused on a range of opportunities or our options ranging from restructuring the site to even possibly divesting some of those assets..

Okay.

Secondly, what is the potential to change some of your contract terms, neither performance in plastics or latex and minimalize to pass through the lower raw material costs in a deflationary environment? Or asked another way, how specialized would you say your product lines in those businesses are?.

Well, I think one of the things that if you look at our portfolio, we've seen that in rubber, and in latex, and in sub segments of our performance, plastics, we've had less margin erosion than we've seen a volume impact. So the margins have held up very well.

And in fact, we have opportunities to value price those products, because they're highly specified and enable customer solutions.

So I would say in sub segments, we have the ability to value based price those because they're a solution, and others were other parts of our portfolio and probably carbon, it's a great example where, you know, it's really a market based price and the market price is based on raw material pass-through..

I think – Eric, it's Dave. Just to add on to that. I mean on that – I think Frank's right, it's a bit of a mixed bag on the performance plastic side on latex. It's different regionally, Asia, latex is generally a spot markets are pricing without explicit pass through agreements. And surprises are set on a monthly basis on a spot negotiation.

Generally speaking, in Europe and North America, it's more contracted business. And you know, those contracted terms have various lengths, it could be from a couple months, up to a year, 18 months, and you'd have to wait for an opener to kind of renegotiate that..

Helpful. Thank you..

Our next question comes from the line is Mike Leithead from Barclays. Your line is open..

Thanks and good morning, guys. A bit of a longer term question to start, there's a number of naphtha cracker, I believe being built in China right now.

Do you have a sense of how many will seek the derivatives into styrene and maybe what that means for the styrene market outlook?.

Yeah, I wouldn't have – I don't think we would have an outlook on that. And, you know, we would sort of rely on our outlook for styrene production based on announced styrene capacity..

Yeah, my Mike, I mean, it takes generally, you know, three years to build a styrene implant and we have a pretty good idea of, you know, based on what's been announced in China, what's coming over the next three years, obviously. Beyond that, it's very difficult for us to predict.

And, you know, as I said earlier, what's impossible for us to predict is the impact that these new, you know, integrated styrene plants of China that operate on the lower end of the cost curve is going to have on the non-integrated producers.

But, you know, over the next three years, I think we have a pretty good handle, at least of what's been announced, as you know, whether it's styrene or polycarbonate, particularly in China, these things tend to be now come online several quarters up to years beyond after the announcement date..

Yeah, but I guess just to go back to the original question, I wouldn't necessarily draw a conclusion that having more naphtha crackers come on stream and that raffinate would ultimately would be destined to the styrene value chain. So there's a lot of different derivatives and directions that the outputs of naphtha cracker can go.

And frankly, I think, you know, it'll be difficult to draw the conclusion that would be for styrene value chains..

Okay, and then I appreciate your conserving some inventory and managing working capital a bit tighter just given the lower earnings outlook. But if I just go back to the original guidance for this year, looks like CapEx is held fairly confident this year.

So can you maybe just talk about the composition of what your capital spending is this year? And if you've look to rerun the numbers on some of that, just given the market deterioration?.

Sure, our total capital budget is $125 million. And if you look at how that built up, its maintenance capital is about $45 million. And then you have two strategic projects that are approximately $55 million of spending.

And that's divided between our ABB conversion in our plants that serve distributed control systems at the plant, and then also the spend of $25 million for our project to become systems independent from Dow Chemical services. So what's left is growth in productivity capital of about $25 million.

Now, each of those, and I would say it's heavily weighted toward productivity. And those have good paybacks. So given the current outlook, and the heavy emphasis on maintenance, as well as strategic spending that we have in this year, it's unlikely that we're going to cut much from that capital spending budget.

But as Dave pointed out, as we go forward, and those strategic initiatives are rolling off and coming to completion, we would see a significant portion of that being freed up for free cash flow, and we would have decision to make whether we have strategic initiatives or productivity initiatives to absorb that.

But I would anticipate a lower capital spending level going forward after this year..

Okay, thank you..

Your next question comes from the line of Laurence Alexander with Jefferies. Your line is open..

Hi, this is Aaron [ph] for Laurence. So I think in the past was mentioned that styrene margins need to be in somewhere in the range of $500 per ton on a consistent basis, or the economics of a new Greenfield to work. And I believe the current margin environment is underneath those levels.

So is there chance that some of the new capacity you mentioned gets completely shell?.

Well, there's, you have two different kinds of styrene capacity that comes into the market. One you have the POSM plants or possum plants that are being built and that's really the driver is demand for propylene oxide and we would anticipate that propylene oxide demand will drive that and which is really consumer spending and population growth.

So we would anticipate that the two that are announced and under construction would begin and they'll come on stream. The non-integrated plants in this environments, it would seem to us very likely that they will not be putting in new non-integrated style green monitor plants given this current outlook and the current margin levels..

Thank you very much..

[Operator Instructions] Our next question comes from the line of Hassan Ahmed with Alembic Global. Your line is open,.

Good morning, Frank and Dave..

Good morning..

You know in your sort of initial remarks, you spent a fair bit of time obviously talking about the whole sort of questions are surrounding recycling and you know, the noise we hear nowadays about, you know, various states, counties, countries in the light coming out with, you know, polystyrene bans.

I mean, as you guys run your own sort of internal supply demand balances, you know, near to medium term, how should we think about the sort of demand growth impact of all of these moving parts, you know, more recycling happening, some of these bans kicking into place and the like? I mean, what sort of impact do you feel it would have on longer term demand growth?.

Well, clearly demand destruction from regulated, you know, de-selection of plastics is that could happen, but we believe that the characteristics of polystyrene offer some real positive options for the market, and then consumers to take advantage of.

And those are proven, you know, we were already seeing very good traction from our JV and America Styrenics and the JV that they formed to recycle polystyrene.

And we're getting very positive feedback from our downstream customers that if we could offer a recycled solution, it would not only stabilize demand, but it could even increase the selection of those materials over other non-recycled materials.

So I think it's still early, it's difficult to tell, but I think there's some inherent advantages in why we're excited about polystyrene and its potential for recycling that offer a solution to the industry..

Understood. Understood. Now, you know, going back to the CapEx side of things, you know, in response to one of your questions, you talked about how, you know, there are a couple of projects that you guys are involved in, and maintenance CapEx is around 45 million. And obviously, the guidance for this year is around 125 million.

So let's you know, take a draconian view, and let's assume that, you know, there's some sort of a recessionary period we get into, I mean, how, you know, there are some companies that have announced some deep CapEx cuts.

So in that sort of a draconian environment, I mean, how low could that CapEx number be, I mean, do we fall down to maintenance levels? Maybe even, you know, for the short duration below maintenance levels? I mean, I'm just trying to get a sense of, you know, what, free cash flow generation would look like in a sort of recessionary environment?.

So, maybe let me make a couple comments in that, that, and ask Dave, to add on to that. The thing to remember is, there's $55 million of strategic spending that we have to do that makes us stronger and more sustainable going forward in this 125 million. So that will come off in the future.

What I would tell you is that, through our business excellence programs, we will identify opportunities for investment in our sites, to take cost out and become more efficient, and will prioritize those and put appropriate hurler rates on that.

But as a practical matter, maintenance spending is, you know, at for the size of our asset base at $45 million, is appropriate. And frankly, we will not sacrifice safety or the stability of our assets for short term, you know, to reduce the CapEx spending in the short term.

So the area that probably is subject to flexibility is the growth and productivity capital, which this year is 25 million. Now, again, we'll be very focused on identity, good projects in the future that deliver very fast returns and have appropriate hurdle rates.

But that's the level of flexibility I believe we have after we get through the strategic initiatives..

Hi Hassan, it's Dave, I'm in terms of the other numbers, I mean, interest is pretty much fixed, about $40 million a year., cash taxes you know, I think you can use it in a recessionary environment, probably a high 20s tax rate on whatever EBITDA you're using.

But again, back to capital, you know, we're going to spend, as Frank said, $55 million this year on those two projects combined. You know, that number next year should be more like 30% or 35%. And the maintenance again, I don't think we would cut, we would continue to spend for maintenance.

So that would be in the probably $40 million to $45 million run rate. And then what's on top for productive productivity would be you know, clearly the decision there would be no made in the context of the economic environment..

Yeah, just one other last point that that strategic spend goes to $7 million in 2021. So it's almost entirely gone by 2021..

Understood, very helpful, guys. Thanks so much..

Your next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Your line is open..

Good morning, Frank and Dave..

Good morning..

I was hoping you could provide a little bit more commentary on the rubber market. I think your rubber volumes were down roughly 11%, quarter-over-quarter, 18% year-over-year.

Is it fair to say that you're losing share in this market? And can you talk about any trends in OEM versus replacement that you're seeing?.

So what we're seeing is that OEM tires broadly, our demand for OEM tires are down because they're consistent with the decrease in the auto fields.

Replacement tire hit with the branded companies, you know, the global branded tire producers has been relatively flat, it's the commodity tire markets that have been hurt more significantly, or the non-performance tire markets. And that's where our ESPR technology would typically go.

SSBR volume has been relatively stable and held up because it's destined more for performance tires. So, you know, that's sort of the high level color. I would say that we would see performance tires, and that utilize SSPR technology growing and being growing much faster than the broader tire market in the future.

And that's why we think that's a variable important place for us to continue to invest and broaden our offering related to performance tires. But that's sort of the broad backdrop that I would give you..

Great, that's really helpful. And then Dave, I thought your comments were pretty interesting regarding this upcoming battle between the integrated and non-integrated tire producers in China.

I was hoping you could just talk about the overall global cost curve and how does Trinseo's European and in American styrene capacity, how does that fare on the cost curve versus these integrated China producers?.

Sure, so on the far left side of the cost curve, you've got Middle East and North America styrene, America styrene is clearly would be in that. And then you've got a step up. We actually showed a chart on this back to this couple of background yesterday in 2016.

So after North America and the Middle East, you've got to step up where I put the European producers and you put, you know, they're generally, you know, pretty close, healthy, there's a lot of separation amongst the European styrene producers. And I would put those on a par with the Chinese large integrated sites.

And then at the far right, several hundred dollars a ton higher, you've got these smaller, non-integrated, independent producers in China, that you know, in normal economic in healthy economic environments operate at 60% operating rates for two reasons. One is because, you know, they only operate obviously when it’s economic.

And second, because they've been hard time getting ethylene, and benzene feedstock, but really ethylene. So they literally these guys are trucking in ethylene. And environment where we are today. You know, in a more difficult economic environment in China, ethylene is plentiful and cheap. So these producers are running.

But I think you're right, what it sets up for China styrene market in the coming years and the question that will, you know, we'll have to wait and see how it plays out is.

You know, after all of this China capacity comes online over the next couple years, what happens to that 40% of Chinese, you know, production that's, you know, comes out of these non-integrated producers..

Great, thank you..

There are no further questions at this time. This does conclude today's conference call. Thank you for your participation. You may now disconnect..