Good morning and welcome to the Celanese First Quarter 2017 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Surabhi Varshney, Vice President of Investor Relations. Please go ahead.

Thank you, Annette. Good morning and welcome to the Celanese Corporation first quarter 2017 earnings conference call. My name is Surabhi Varshney, Vice President, Investor Relations. With me today are Mark Rohr, Chairman and Chief Executive Officer; Chris Jensen, Executive Vice President and Chief Financial Officer; Scott Sutton, Chief Operating Officer; and Pat Quarles, Executive Vice President and President, Acetyls Chain. Celanese Corporation's first quarter 2017 earnings release was distributed via business wire yesterday after market closed. The slides for the call and our prepared comments for the quarter were also posted on our Web site, www.celanese.com in the Investor Relations section. As a reminder, some of the matters discussed today and included in our presentations may include forward-looking statements concerning, for example, Celanese Corporation's future objectives and results. Please note the cautionary language contained in our posted slides. Also, some of the matters discussed and presented include references to non-GAAP financial measures. Explanations of these measures and reconciliations to the comparable GAAP measures are included with the press release and on our Web site in the Investor Relations section under Financial Information. The earnings release and non-GAAP reconciliations have been submitted to the SEC on a Form 8-K. The slides and prepared comments have also been submitted to the SEC on a separate Form 8-K. This morning, we'll begin with introductory comments from Mark Rohr and then open-up for your questions. I'd like to turn the call over to Mark now.

Thank you, Surabhi. Welcome to everyone listening in today. Our prepared comments were released with earnings yesterday, so I will limit my comments, then open the line for your questions. In the first quarter of 2017, we generated GAAP earnings of $1.30 per share, and the second-highest ever adjusted earnings of $1.81 per share. In the Acetyl Chain, raw material prices were sharply higher sequentially and the Chain business responded well by dropping price increases globally. We remain aggressive in our commercial approach and selected when and where we place our Acetyl molecules. This has allowed us to expand core income margins every month this quarter, up 200 basis points sequentially to 13.6% overall. For the first quarter, the Acetyl Chain generated core income of $108 million. Materials Solutions had another record quarter generating core income of $243 million. Advanced Engineered Materials segment income of $143 million was an all-time high and volume grew 35% sequentially driven by double-digit organic growth and contributions from the SO.F.TER. acquisition. We also closed 513 projects in the quarter, which puts us well on track to achieve our targeted 1,900 projects for the year. The SO.F.TER. integration is progressing well and we expect to close previously announced Nilit Plastics acquisition in May. Consumer Specialties' segment income in the quarter was $100 million, with 46% segment income margin. Tow volume increased sequentially due to unique carryovers from 2016 as we transition contracts, but was offset by decline in pricing due to lower industry utilization rates previously discussed. We continue to expect 2017 earnings from Consumer Specialties to reset at $0.40 per share lower than 2016 and stabilize from there. During the quarter, we invested $128 million to repurchase shares and along with dividends we returned $179 million to our shareholders. I also want to congratulate our team this quarter for the results and their tireless efforts and support of customers and shareholders. Looking forward to the rest of the year, Advanced Engineered Materials will contribute meaningfully to sales and earnings in 2017 through growth from new project commercialization and emerging benefits of SO.F.TER. and Nilit integrations. The Acetyl Chain is strategically positioned to take advantage of evolving industry and raw material environments and it also advance growth. While tow headwinds, muted industrial demand, and uncertainty in raw materials were challenged. We are off to a very good start for the year and we expect earnings per share growth of 8% to 11% this year with the second half about $0.20 higher than the first half.

Thank you, Mark. I’d like to request everybody on the phone to limit your questions to one and then a follow-up. Anita let's go ahead and get started with a Q&A, please.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Laurence Alexander with Jefferies. Please go ahead.

Good morning.

Good morning.

Two quick ones. How much of a drag was VAM year-over-year, and do you expect the lost volumes or the volumes that you sacrificed to come back in the back half of the year or in 2018? And then on acetate tow, can you speak to your relative leverage to regular cigarettes versus -heat-not-burn cigarette? And what that -- what those products might have as an impact?

Yes, I will start, maybe have Pat who is here make a few comments on VAM, but if you look at the wall quarter-to-quarter, the VAM impact was pretty material for us, fourth quarter and the first quarter and probably half of the down side we saw on a margin basis. So when I think through that, and the other half being TSO and some other things that are going on. So VAM was pretty material. Pat, you want to comment maybe on a forward look of -- for VAM?

Yes, sure. Hi, Laurence. This is Pat Quarles. Mark is right, I mean, fairly material versus last year. If you think about what happened to us in China, with the extraordinarily strong ethylene which were based on for VAM process versus carbide producers more tied to coal we had very strong ethylene in the first quarter. Puts us in situation where we'd rather just not participate in the market in China during that period and take a little pressure off of other peoples drive to export which we think benefits us in the rest of the world. So that was really what drove our decision-making in the first quarter as we get into the second quarter ethylene remains high in China. That dynamic really hasn't changed. What’s changing of course is this overall utilization of the system, because the multitude of outages that we and others were having in the market and where we're actively meeting customer demand, both through our Western Hemisphere assets as well as actually bringing molecules in from China to meet those commitments we have elsewhere.

Well, Laurence, the other question if I understood was really around e-cigarettes and maybe smokeless tobacco and the trends there, is that what you -- is that your question?

Exactly, more in the smokeless tobacco side, I think e-cigarettes have been flogged almost to death?

So I will let Scott Sutton, if you will, take a shot at that.

Yes. Hi, Laurence. Look, I mean the reality today is that a small part of our tow business actually goes into heat-not-burn devices. It's something on the order of 1%. Most of our business goes into traditional cigarettes and superslim cigarettes. However, what’s going into heat-not-burn is growing very quickly and on top of that we have quite a number of projects in our engineered materials pipeline or thermoplastics to go into those heat-not-burn devices.

Okay. Thank you.

Thanks, Laurence.

Our next question comes from Robert Koort with Goldman Sachs. Please go ahead.

Thank you. For Mark or maybe Pat, you guys had mentioned previously a acceleration in AI profits in the second half. I’m wondering, if you can help us if that cadence still holds and what causes the uplift in the second half? Thanks.

Yes, we do -- I mean, we’re seeing profits accelerate now as we go through in this raw material inflation that’s going on really driven by China, but around the world. So we are expecting that to continue as we go through the year. Pat, you want to maybe…?

Yes, sure. So if you think through market dynamics, you heard me say before, a variety of outages going on that we’re in the middle of that, we and others. That is actually continue throughout the second quarter and into the third quarter. So our expectation is from our businesses results, we will see margin expansion as we’re currently seeing into the second quarter. But we’re constrained on the supply, right because our Clear Lake unit is out for a period of time and as that returns in the third quarter we expect to still have pretty good market dynamics and we get the benefit of volume contribution in the back half of the year and that’s what gives us that profile, Bob.

Thanks. And is there anything -- for Scott, is there anything specific to the SO.F.TER. earnings stream this quarter that depress the margin so substantially or is that something we should expect at a similar level going forward?

Yes. Hi, Bob. This is Scott. So, yes, I mean, SO.F.TER. is getting to the point where it is closer to being fully integrated. So you do see some depression on margin percentage for a while. Over time, we will be able to bring those up, but that is primarily what was responsible for the little lower margin percentages in our Advanced Engineered Materials business in the first quarter.

Yes, Bob, we’ve -- I don’t know if we missed it or didn’t communicate it well enough, but we’ve talked about these businesses you’re bringing in being at the very low double-digit margin levels when they first come in. So contributions of maybe $0.10 for this quarter from SO.F.TER. -- I mean, for this year from SO.F.TER. and much, much less than that in Nilit, it would be like $0.10 next year. So, you’re looking at multiyear process of getting these businesses up to margin levels that are more consistent than what we would expect in this arena.

Got it. Thanks.

Thank you, Bob. Anita, let’s take our next question, please.

Our next question is from Duffy Fischer with Barclays. Please go ahead.

Hey, guys. This is actually Mike Leithead sitting in for Duffy.

Hey, Mike.

I guess – hey, Mark, obviously a strong start to the year, but a lot of moving pieces you've acknowledged kind of with raw material volatility, mixed signals on global demand. I guess, when you look broadly across your portfolio, do things today feel better than when the year started or maybe there are some incremental headwinds you have to fight through?

No, they feel better. I mean the raw material movements has have been sharper perhaps than we anticipated. Those are my words. If you look at it on a full-year basis -- on a full-year basis, we’re expecting as much as $200 million, maybe $250 million of inflation year-over-year, full-year kind of look at that. So you’re going to have movements and we just had a little chunk of that so far in the first quarter, certainly less than $40 million of gross raw material inflation. So we're looking at a pretty volatile raw material environment, Mike, and that’s okay. We don’t mind volatility. We always like it. Of course we’re going to predict it, but a little volatility is not a bad thing. And so as we got this year we’re going to see some movement quarter-to-quarter in margins and maybe little bit reflection of that volatility, but we’re pretty excited about how the year is stacking up.

Great. And then just one more quickly on the volume growth in AEM. Can you help size for us the impact of SO.F.TER. this quarter? I guess, I'm just trying to get better idea of how well the base business performed in the quarter for AEM?

Yes, sure. I mean, one thing here, Mike, I don’t want to get too specific on continuing to break out SO.F.TER. because it is becoming integrated. But what I will say is that without SO.F.TER. the number of projects is still an all-time record. The growth in volume is still double-digit regardless whether you look a year-ago or the quarter before. So SO.F.TER. contributed right on plan, but still the organic business is the big driver. So, [have to have] [ph] for less is what I would say.

In terms of volume and projects, clearly the organic business is the big driver. In terms of profit contribution, SO.F.TER. probably contributed 30% of the profit growth.

Yes, yes.

Great. Thanks, guys.

Okay.

Thanks, Mike. Let's take our next question, Anita.

Our next question is from Frank Mitsch with Wells Fargo Securities. Please go ahead.

Hey, good morning.

Good morning.

You mentioned some of the outages at Clear Lake, both I guess the acetic acid unit and the methanol unit are off-line and I saw that you guys are also running your Singapore facility at reduced rates here in Q2. Can you talk a little bit about what you’re sizing the financial impact of these outages are?

No, we’re not going to break it down that way. What we will say is that it’s a six week kind of outage. I think the gross expenditures will press $50 million. The entire complex is down. So not only the Celanese sites here, but also the other site partners. So it's a -- by any measure it's a very big outage and we're replacing our utility pipeline, utility kind of systems and the process. So, we haven't broken that down in there, Frank.

Well, so it's a six weeks and you’re saying the capital cost about $50 million bucks?

In expense.

In expense.

And at this point, with reduced production of VAM, I mean, I’m guessing that the market is going to be pretty damn tight when you come back in. Is that not how we should be thinking about AI, once we get past these outages, because you also have some major outages over in Asia, not you per se, but the industry?

[Indiscernible] qualifiers on there, pretty and damn. So I think it's going to be pretty tight, I don’t know if it was damn tight, but -- so yes, the market is tightening up a little bit, that's right.

Right.

Frank this is Pat. I mean, I think, you see that expressed in the profile that we’ve talked about, the cadence across the quarters, right and that’s exactly those dynamics we’re talking about that are reflected there.

Yes.

Thank you so much.

Thank you.

Thanks, Frank. Let's take the next question, Anita.

Our next question comes from P.J. Juvekar with Citi. Please go ahead.

Yes, hi, good morning.

Good morning, P.J.

Mark, China has been shutting down a lot of coal-based capacity in various chemicals, whether it's urea, caustic. How is that impacting the Acetyls Chain, given the backward integration into coal? And could that suggest sort of a turning point in Acetyls in the future?

Yes, I think -- maybe Pat may have some clarity here too, but when you look at a very high level, I think China is holding true to their perspective that coal gasification as it relates to our business is not going to be increased in China, it's going weigh in. And so you see an evidence of that starting to occur. You're also seeing China push and support indirect with sort of higher coal pricing as well, if for nothing else to fund the kind of investment they need to start cleaning up their technology around coal. So, we’re seeing that as setting the higher foundation, raw material cost foundation for China, which is a very good thing. The other thing that we’ve talked about in the past is the addition of MTO in China and the impact that’s having on methanol, and one that Pat and Scott remind me all the time is, is China gets the MTO really running, then they really are a net importer -- methanol is going to come from somewhere else. It's not going to come from China nor is methanol likely to be built in China. So my personal view is that, that source versus let's say in the last several years that’s going to reset. There is couple of years going forward to a higher base level cost position for those materials in China, which net-net is good for the industry.

Thank you. And just secondly on filter tow. Your prices are down 8%, volume is down 2%. Do you believe that 2017 could be sort of the final year of de-stocking and then you could see at least volumes begin to improve in 2018 or is that too optimistic?

I think we’ve said 50-50 on average at $0.40 between volume and price. So you can see a little bit of movement around when that settles as we go through this year. I don’t know how to really answer your question. I think, we do really believe that it is going to set the foundation and we hope that next year it doesn't. There are early signs to deteriorate next year. They shouldn't, but that's kind of where we are. I don’t know if Scott if you had anything?

No, I think that that’s right. I mean 2017 is at or near our floor and we’re working actions to help that.

Yes. Thank you.

Thank you, P.J. Let's take our next question, Anita.

Our next question comes from David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning.

Good morning, David.

Hey, Mark, in Q1 you beat expectations, but you did not raise full-year guidance. You mentioned there was some challenges on raw materials. Was anything else besides raw that held you back from perhaps raising guidance for the full-year?

No, I just didn’t want to roll it out there, but I think our year is back-end loaded and if you look at that there is a lot more loaded in the back-end of the year and that means that just increases your risk, so I thought it was prudent not to roll it in. Let's see how we perform this quarter and our view from there and we would be in a better position to call the full-year then.

Understood. And question for Scott. Scott, just on the auto exposure in AEM given some weakness in that end market, can you discuss your exposure and how you might offset that end-market weakness going forward?

Yes, I mean, we’re certainly less exposed to auto than we used to be. It's still a critical segment to us, maybe it's a third or less of our exposure there, but again our big driver is our model and our project pipeline system and we’ve a tremendous number of projects that are in the auto area that aren't necessarily dependent on overall auto volume growth.

Thank you very much.

Thanks, David.

Thanks, David. Anita, let's take our next question.

Our next question comes from Jeff Zekauskas with JPMorgan. Please go ahead.

Hi, good morning. Thanks very much.

Good morning, Jeff.

Last year you had a really strong quarter in Acetyl Intermediates where your volumes grew mid-single-digits and this year in the first quarter they were down low double digits. And methanol prices also really lifted year-over-year and I think you transfer raw materials at cost from AI to AEM. So with some of the margin deterioration in AEM due to higher raw material costs that were embedded in Acetyl Intermediates both from the change in volume and from the change in methanol prices.

You know our -- I will let [indiscernible] but our transfer prices is pretty darn close to market, Jeff.

Okay.

So, we don't -- we work hard to try not to shift things around, I will put it that way, and there is a little curve, probably but ….

Okay. And then you took a $27 million contract cancellation charge in ethanol, what exactly was that? And was that -- did that cash flow go out in the first quarter or will that go out in the future quarters?

So, the cash did not go out, and a lot of these contracts in the Acetyl Chain on the supply side, well I wouldn't say a lot, but there are a handful of very key supply streams where your vendor is really setting up shop there for you and making a huge investment. So, if you think of the industrial gas company business model, that's what it is. So you’re signing long-term contracts that allow them to recover their capital that they incurred for you or for us. So that number is essentially the present value of what we owe them over time. So it will be paid over time.

Okay, great. Thank you so much.

Thanks, Jeff. Anita, let's move to our next question, please.

Our next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Thanks and good morning. Just, Scott, you mentioned that you’re working on some unlisted [ph] projects or some things to, I guess help the consumer acetate tow business. And I guess, what you're talking about maybe some production reductions of your own, number one. And then this is a follow-up, you guys think that the stability can take place in tow in 2018 without any production coming out from yourself or from other industry parties?

Yes, I mean, Vincent, what I will say is, we’re always working on a number of things, but specifically there is a lot of productivity work going on in the tow business and that can involve assets, it can also involve co-producer arrangements too.

Okay. And just as a follow-up, on AEM the JV income was a bit stronger than we expected. Was there anything specific to this quarter and in terms of the balance of the year, I think you will have a turnaround in 2Q, but is there anything we should think about as we model the JV income for the balance of the year?

Yes, I mean, I don’t think there is anything to really highlight. It was a stronger quarter sequentially than before, it probably won't be quite that strong in the next couple of quarters coming up, but it's not far off.

Okay. Thanks very much.

Thanks, Vincent. Anita, we will take our next question.

Your next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Great, thanks. So you guys have pointed to about 8% to 11% growth in 2017 on EPS. If we take a similar look at '18, we get to about $8. In the past, you’ve talked to $8 to $8.50. So, would you need additional M&A to get to the upper end of that range, or are you still looking at that as achievable? And maybe you can just talk about the pipeline a little bit.

Yes, when we rolled out those numbers out, they were -- the $8 to $8.50 was with -- without M&A, but at the same token we did not anticipate the well over $100 million drop that we’ve seen in value coming out of the cellulose -- cellulosics business. So, we need M&A to cover that, so we need M&A to contribute $0.50 to $0.60, I would say to have a shot at that. So we probably are going to do a little more M&A to make sure that’s there.

And then, maybe you can just, as a follow-up talk about your cash use plans and the pipeline a little bit. Are you still looking at splitting that between M&A and buybacks? Thanks.

So, we have a authorization that would allow us to do about $500 million this year, and that’s currently our intention is to do $500 million of share repurchases in 2017. At that point, that authorization ends, so we will be talking more soon about changing uses of cash and what that looks like, but if we’re successful on executing continued bolt-on acquisitions, it will be difficult to sustain that kind of pace of share repurchases.

Thanks.

Thank you. Anita, we will move on to the next question.

Next question is from James Sheehan with SunTrust Robinson and Humphrey. Please go ahead.

Hi. This is Matthew Stevenson on for Jim. Is the demand environment in China following the Chinese New Year sufficient to support the recent price movements, the favorable price developments in Acetyls there, or is it purely a result or only being supported by the tight supply due to outages there?

Hey, Matthew. It's Pat. I would love to tell you that the demand is driving a big change in margin performance in China, but the reality is it's a oversupplied market today. So we’re really watching kind of short-term dynamics in our ability to make choices in our Chain, in our plans to kind of benefit ourselves and influence as much as we can. We’ve been talking about the higher coal cost environment that really started in the second half of last year and continued into the first quarter. And that put many of our competition in a position where they want to drive price and they’ve been doing that, we've been doing that and that’s benefited us ultimately on margin as well. I think the dynamics that we talk about in terms of outages is primarily a Western Hemisphere dynamic and as we’ve said we’ve seen that developing throughout the first quarter in a very positive way and we feel good about where we’re headed in the second quarter.

Understood. And in terms of the cadence of earnings throughout the year, when you reported your 4Q results, you were indicating, I think it was $0.35 to $0.40 higher earnings in the second half of '17 compared to the first half of '17, now that’s been reduced. And at least compared to where numbers were, it seems like the difference came out of consumer. Can you -- maybe elaborate on that?

I’m sorry. I’m actually -- can you repeat the first part of your question. I’m sorry, I missed it.

Sure. So, I believe the guidance now is for the second half of 2017 to see earnings per share of about $0.20 higher than the first half of '17 and that’s less of a step-up in the second half than we had previously been anticipating?

Right.

And so, I wonder if you could elaborate on that and just based on your performance versus consensus by segment, it seems like that came out of consumer, like out of the tow business. So I’m not sure, if that’s accurate to some extent or if you can elaborate on what is driving those dynamics?

Yes, I think you’re being a bit too mathematical with this whole process. We started the year with a view that to make our numbers that we knew, it had to happen as we needed to see raw material inflation which is incurring, and we needed to capitalize on that, which we’re doing. And so -- and that was back end loaded. So we’re expecting this inflation to actually grow as we go through the year. We’ve had roughly $40 million of what will be, we think well over $200 million for the year. So you can see, its more heavily back end loaded. So we were pushing as much as $0.40 of earnings in the back half of the year. So now we got one quarter under our belt, we actually -- we’re just not -- to be honest I’m not taking credit for that. I think we need to get into the year a little bit more and see how that inflation occurs and just validate we can extract the kind of value from what we think we can and then, we will talk about how to adjust at the end of next quarter for the year, but it's not more than that.

Understood.

It's just a high level haircut for the back half of the year.

Understood. Thank you.

Yes.

Anita, we will move -- go ahead Anita.

Our next question comes from Aleksey Yefremov with Instinet. Please go ahead.

Good morning. Thank you. Could you quantify any benefit of productivity initiatives that that you achieved in the first quarter?

Yes, yes. We’ve a $100 million in for the year and we were roughly on pace that might be a little bit higher than that in the first quarter and that’s pretty evenly split between the groups, yes.

Got it. Thank you. And then, just turning back to Acetyls, could you help us understand the total EBIT impact of the outages in the second quarter if we look sequentially versus the first quarter, including the missed opportunity and the actual cost that will not be capitalized?

Yes, we don’t really break it down that way. So I’m not trying to withhold that. I just don’t have it in front of me, Alex, to break it down that way. I mean we will have …

And we have some expense in the first quarter already.

Yes.

We are already -- we were spending money in the first quarter as we got into it. So you have volume metrics as well as higher expense in the second quarter.

But I guess, directionally, is it going to get worse in the second quarter or stay at about the same level?

Did you say AEM of Acetyls?

Acetyls.

Acetyls.

Yes, it's going to stay roughly the same level, I'd say going through the quarter, maybe a little better, yes.

Okay. Thank you very much.

Yes.

Thanks, Aleksey. Anita, we will take our next question.

The next question comes from John Roberts with UBS. Please go ahead.

Thank you. Just to triangulate a little more on the AEM earnings growth, you mentioned double-digit organic growth in AEM or the earnings from the legacy wholly-owned AEM operations also up double-digit?

Yes, and so -- this is Scott. Look, the legacy earnings growth quarter-to-quarter is -- if you take out the affiliates, right which I’m -- we’re going to the nature of your question, right. So it's not quite double-digit, but what we haven't talked about, and I will just put it out there now is that quarter-on-quarter regardless of whether its fourth quarter last year and first quarter last year. There is about a double-digit millions of dollar charge for inventory adjustments sitting in our first quarter this year, and it just has to do with the fact that we ran down our inventory due to sales. So that’s sitting there. So, if you take that out, it's certainly double-digit earnings growth to support a double-digit volume growth.

Yes, last year, we were building inventory for a big turnaround. And this year with the success of sales and what we’re seeing in the marketplace, we’re having to pull a lot of inventory. So it was a pretty good charge in there and that mask a little bit of the -- what Scott was talking about.

And then, Scott, you gave us these project count numbers in terms of new projects launched and backlog. Is there a way to qualify the quality of the backlog? I’m sure there is long cycle project, short cycle products, there is higher profitability and lower profitability, is it homogenous enough that we can use the raw project count as a good metric?

Well, I think the growth in the projects that are closed are a good marker. I think our pipeline, we currently -- we’re working on 4,000 or 5,000 projects right now, supports growing that closure rate year in and year out.

Okay, but you wouldn't expect much mix effect -- that the raw count will actually be a good metric?

Well, I think the number of closes of projects is a good metric to judge how the business is doing.

Okay. Thank you.

You bet.

Thanks, John. Anita, we will take our next question.

Next question comes from Bobby Geornas with Susquehanna. Please go ahead.

Good morning. Just a question on the raw material spike. Given the increased raw materials in Q1 and subsequent price initiatives that you’ve gone after, to what extent do you see the potential for actual margin expansion in Q2 and as we progress through the year, or the increases that have been announced sort of merely intended to catch-up with the increase in raws?

Yes, so that inflation of raw input started late in the fourth quarter, and we talked about that during the first quarter earnings call -- the fourth quarter earnings call a few months ago and that really continued. We’ve actually been successful swimming upstream faster than those increases. So we’ve expanded margins really in every product line in Acetyls, really with the exception of the China VAM comment that I made earlier, and we’re only frankly just getting started in a lot of ways, because the real tightness due to these outages in the Western Hemisphere began to settle into the market late March and into April. So, yes, we’re expecting continued margin expansion into the second quarter and feel pretty good about that where we sit today.

Okay. And just one clarification question. Earlier you mentioned there is a $250 million sort of full-year headwind from raw materials. Are you saying that about $40 million of that you had experienced in Q1?

Yes, those are gross numbers. So, I’m not giving you the net, some of that is past due, some of that we have to really fight to cover, but yes we had about $40 million, I think it was $38 million to $40 million of gross inflation in major raw materials and energy through the first quarter.

Thank you.

Thanks, Bobby. Anita, let's move on to our next question.

Next question comes from the Hassan Ahmed with Alembic Global. Please go ahead.

Good morning, Mark.

Good morning.

Mark, obviously a lot of sort of conversations around the spikes in raw material prices that we’ve seen. Obviously, it seems that methanol at least, as I take a look at the spot market and certain new sort of contract pricing that’s coming out, there seem to be signaling some methanol pricing declines. Now similarly on the ethylene side, there is a perception in the marketplace that as turnaround season is over and as more capacity comes online, ethylene pricing may come under pressure as well. So obviously, I mean cutting through all of this, it seems that raws may continue to be volatile at least in the near-term. So my question really is, as we’re seeing all of these ups and downs in product pricing, are you seeing buyer patterns change, meaning are you seeing people holding leaner levels of inventory or destocking or any of those elements?

Yes, you see all those things every day. I mean that’s everybody tries to guess what raws are going to do and take an advantage of anywhere they can. What we see with raws is that if you look at year-over-year, so just from a year-over-year basis, I’m pretty confident we will be several hundred million dollars higher, but when we end this year than last year, how that actually rolls out quarter-to-quarter. We had a spike up in methanol. We had a major outage of the world's largest MTO plant, and they dumped …

400.

400 tons.

KT [indiscernible].

KT in the market, to press the market, you are kind of working through that today. So, I think you are going to see that kind of volatile movement, but the broader trend is that we’re seeing higher and higher inflation, and I think broadly speaking, there is a limit to what you can do long-term to deal with that. I mean long-term it's got to be processed through the value chain. Short-term you may be -- you may hold back a decision to buy or you may build some inventory or do things like that.

Fair enough. Now on a different topic, you guys talked about through the course of this year, if I’ve heard this correctly, essentially taking the entire $500 million of share buyback authorization sort of spending cash on that. So my question basically is that, as I take a look at the 52-week sort of trading range of your shares, they’ve been in the low 60s, they’ve been in the low 90s. So -- and obviously today they’re closer to the high-end of it rather than the low-end. So does that change the sort of thought process or calculus around buybacks, I mean meaning, do you still feel that you will be able to sort of do the full $500 million or does that decelerate a bit?

I don’t change the calculus, I mean we -- the earnings have been growing in the Corporation without the equity base has been growing in the Corporation. We expect to continue to grow earnings. We expect to be $8, $8.50 at the end of the next year. So you can -- if you want to do math on that, you can forecast in what you think the share price is going to be next year, but we’re expecting that -- we’re expecting earnings to grow and we’re expecting share price to grow. So we look at from an intrinsic value and we think that the shares today are priced in a way that they’re still quite attractive. So we’re on pace to do that $500 million this year.

Very helpful. Thanks so much, Mark.

Thanks, Hassan. Anita, we will move on to our next question.

The next question comes from David Wang, Morningstar. Please go ahead.

I just wanted to follow-up a little bit more on the margins for AEM segment. I know we talked about this a little bit already, but I wanted to get some more clarity around if we saw any margin compression in that legacy business or was it mostly due to SO.F.TER? I’m just trying to get a sense of that 3% kind of looks like year-on-year pricing decline. Do we see that in which segment of the AEM business?

Yes, so, hi. I mean this is Scott. Look, I mean it's really two principle drivers. One is that SO.F.TER. is now integrated into our business, so that brought some lower margins in and the other key driver that is what I talked about before, right, is this double-digit millions inventory charge in the first quarter that wasn’t there in other quarters as well. So those two things principally dropped the margin down.

All right. Thank you.

Okay.

Thank you, David. Anita, let's take one more question and that will be the last for the call today.

Our last question comes from Ghansham Panjabi with Robert W. Baird. Please go ahead.

Hey guys, good morning. Mark, just going back to your comments on inflation and just to clarify in the $200 million plus in growth inflation. In your 8% to 11% earnings guidance, are you assuming that you fully offset that growth inflation number for 2017?

Oh, yes.

Yes.

Good. Okay, great. And then also in terms of the …

[Multiple speakers] The only way I can answer that, but it's yes, hell yes, we expect to offset it.

That’s what I wanted to hear. And then just going back to the VAM pricing environment in China, can you just give us a sense as to the difference in production cost during the first quarter and has there been any improvement into 2Q thus far?

Yes, so the dynamic in VAM in China really changed towards the end of the year beginning of this year, when essentially the relative competitiveness of the carbide VAM producers and the ethylene VAM producers switched and changed both our behavior as well as theirs. So it was towards the end of the quarter, really just that light switch flipped on us. So as a result, then we really minimized rates early in the first quarter backed away from influencing the market with production in the market if needed, and the carbide guys kind of fill that space. That dynamic still exists today. I mean, ethylene remains very strong. It's pushing over $1,200 a ton again. So we will need to monitor ethylene that's going to judge what we need to be doing inside China. That capacity is still competitive on an export basis to fill in some supply commitments that we’ve made, so we do move a little bit out of China to ensure we keep our customers supplied.

Okay. Thanks so much.

Thank you.

Thanks, Ghansham.

We will wrap up the call now. Thank you, everyone for your questions and for listening in this morning. We will be around if you’ve any further questions. Anita, I will turn the call over to you now.

This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.