Greetings, and welcome to the Celanese Corporation’s First Quarter 2020 Conference Call [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Abe Paul, Vice President of Investor Relations. Please go ahead.

Thank you, Brock. Welcome to the Celanese Corporation First Quarter 2020 Earnings Conference Call. My name is Abe Paul, Vice President, Investor Relations. With me today on the call are Lori Ryerkerk, Chairman of the Board and Chief Executive Officer; Scott Richardson, our Chief Financial Officer. Celanese Corporation distributed its first quarter earnings release via BusinessWire and posted prepared remarks about the quarter on our Investor Relations Web site yesterday after market close. As a reminder, we'll discuss non-GAAP financial measures today. You will find the definitions of these measures as well as reconciliations of the comparable GAAP measures on our Web site. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of the press release as well as the prepared comments document. Form 8-K reports containing all these materials have also been submitted to the SEC. I will turn the call to Lori for opening remarks before we open the line directly for your questions.

Thank you, Abe. Before we turn it over for questions, I would like to take a moment or two to make just a few comments. We all recognize the unprecedented challenges the world is facing right now. On behalf of Celanese, I want to extend our sympathy to all of those affected by the coronavirus pandemic and express our gratitude to those who are working tirelessly on the front line to keep us all safe. I want to acknowledge and thank our employees across the world each one has been impacted in some way. And amid their very individual circumstances, they have collectively performed exceptionally well. I particularly want to thank our manufacturing employees around the globe who have kept our plants running to make and ship products to our customers. I also want to acknowledge our employees working from home who are still supporting customers, closing deals, signing contracts and closing our books. Our first quarter earnings per share of $2.29 reflects their efforts, and was not far off from our original expectations before all this happened. The first quarter was tough and the reality is the second quarter is shaping up to be far more challenging. Simply put, we do not yet know how far demand will ultimately drop or how long this will last. We have tried to be transparent in sharing where we have visibility. Fortunately, one of our great strengths at Celanese is a culture of resiliency and a can-do attitude. I would like to thank Mark, who recently announced his retirement as our Executive Chairman for his support of me throughout the CEO transition, but also for fostering over many years the development of this remarkable Celanese culture. Our culture is one of actions. We have a lot we are working on to counter…

Thank you, Lori. Brock, you may now open the line directly for your questions.

Thank you. At this time, we’ll be conducting a question and answer session [Operator Instructions]. Our first question today comes from P.J. Juvekar of Citigroup. Please go ahead.

I hope everybody is well. I have a question for you. You guys were making a long-term move to add downstream capacity VAM emulsions in the U. S., but with oil prices falling and natural gas prices kind of hanging in there. What's your take on the U. S. advantage? And how do you think the future regional capacity for Celanese breaks down?

Yes, it's a question we've been looking at ourselves, but let me try to put it a bit in perspective. We think the U. S. gas, even at these low oil prices, will continue to be well advantaged. So just to put that in perspective. If we look at the difference between let's say asset production between Clear Lake and Nanjing, our cost of production at Clear Lake is half as Nanjing, even at low oil prices. And Singapore, which is affected by low oil prices, but it just comes down slightly below the cost in Nanjing. So you still have a two to one advantage at Clear Lake, and that advantage rolls through VAM and VAE and everything else. So while we don't have as much advantage now in the U. S. Gulf Coast versus other producers, it is still a big advantage versus producing out coal or producing out of a low oil environment. So our plans have not changed. We will continue on pace with our VAE and our VAM expansions. We are slowing the acetic acid reconfiguration project as we noted in the script. Those productivity gains and the reason for doing that project are still intact, but we will pause it for a period of time to allow us to take advantage of these low oil cost environment and what that means for our Singapore operations.

And a quick question for either you or Scott. You know, Mark Rohr had talked about for some time potential RMT transaction, given the pandemics and Mark's upcoming retirement. Would you think probability of a large transaction is lower now? Thank you.

Our first priority has been and will always remain generating the most possible value for the shareholders, and we constantly look at options to do so. I think in the current environment that we're seeing demand environment this is difficult to do. Clearly, if you're looking at cash still that's very difficult in this environment as everyone's valuations are down. We do though think there continues to be room for mergers of equals or RMTs, and we think there will be even more opportunities for these things as we move towards full recovery.

The next question is from Duffy Fischer of Barclays. Please go ahead.

I was wondering if you could just give us some help around the decremental margins you gave, some helpful quantitative numbers around what you think demand is going to do, acetyls is down 15 to 25. But say at the 15 level versus 25, is there going to be a difference in a decrementals and kind of same thing for EM, if you were? Just walk through how should we think about the profitability relative to the sales fall?

So let me talk a little bit about the guidance we gave for Q2. So what we indicated in the script is, we do expect to see in Q2 engineered material volumes down 25% to 35% versus Q1. Now with that, about two thirds of that volume is still relatively sticky in terms of pricing, so we would expect those margins to maintain, possibly even get a little better as well as continue to go down. At the same time, you know about a third of it is tied to raws so we'll see those prices go down, margins generally stick around the same. For acetyls, we project the volume decline of 15% to 25% and Q2 from Q1, couple things around that, India lockdown, Southeast Asia lockdown, we're just not seeing the volume demand there. And margins they’re tend to follow, methanol and other things a bit. So probably expect to see our margins going down somewhat, but we would still expect acetyl margins in the mid teens or so. So we do expect some margin compression in AC, expect margins to be somewhere in EM but down with the volume. And if you look at what that just to maybe put some numbers around it. We saw a $25 million to $30 million hit in Q1 just from Asia. And Asia represents 20% of our overall business, and that was really in February and March. So consider that we've lost $10 million to $15 million per month on 20% of our business. It's not unreasonable to expect we would see a similar impact in Q2 on the other 80% of our business in the Western Hemisphere. So if you do the math on that, we do expect somewhere between $150 million to $250 million impact on Q2 EBIT, from the combination of volume and margin degradation. And how that -- as we go forward into Q3, Q4, we've done a lot of scenario planning, as I'm sure every company has, we think it's unlikely we're going to see a V-shape recovery. So coming back in Q3 that we do. We have done scenario planning around an U shape or L shape and broadly, expect Q3 to also be down but some recovery in Q4. But again, we don't really know how broad this is going to be. We don't know the degree of the downturn, nor do we know the duration and of course, Asia recovery, how fast that actually happens is a big factor.

And then could you speak to how you're JVs have performed vis-a-vis how you performed particularly in EM? I know at times over the last several years, Celanese has made the comment they saw some of those JVs were a little bit under managed on the cost side. So maybe just kind of walk through how you think they're doing versus the markets?

Let me start and then Scott may have some comments as well. So in general, I mean in first quarter, our JVs look good but generally our JVs report on a quarter lag. So we would expect some downturn in the second quarter for our JVs that may not show up so much until third quarter. Ibn Sina maybe slightly down more because it has a closer tie to crude, but that number and those JV numbers are baked into that $150 million to $250 million impact that we expect in Q2.

Duffy, as we look at what our JVs are doing, they're very focused on cost right now as well. I mean, they're not immune to this environment, particularly our two JVs that are focused in Asia, were hit with some of the softness in demand that we saw in Q1 as well. And that will flow through a little bit into the second quarter. But hopefully, we'll start to see continued demand improvement, which will help them there but that doesn't mean that they take their foot off the gas on working the cost side of the equation as well.

Our next question is from Bob Koort of Goldman Sachs. Please go ahead.

Lori, you surprised me a little bit with your commentary about how much better your cost position is in clearly than the Nanjing. Can you talk about how much it's compressed though or maybe what the broader industry cost curve has done over the last two or three months, is it substantially flattened or maybe characterize some of that for us?

I would say, we haven't seen a big shift in coal pricing, so that's really what drives Nanjing. So we haven't really seen compression between Clear Lake and Nanjing. The real compression is versus oil base, so like Singapore where everything's really priced out of bunker fuel. So, that's really where we've seen the compression, not as much advantage as we used to have between U. S. natural gas rate base and oil base. So Singapore and some of the European producers for example, they tend to be oil based, that's where we've seen the compression. But again, what we've seen, at least in the low oil environment so far is just we still have kind of a 2 times advantage in the Gulf Coast as we do in other location.

And then I guess China's economy is directed in a different way or managed in a different way, but it seems like that recovery is in the manufacturing sector, at least started pretty aggressively. How would you anticipate any cues from China informing what might happen in the Western markets for you as we go through the second and third quarter?

So I think what we need to watch for in China, well, a couple of things. So you're right, people are up and starting to run again in China. We see some China internal demand recovering. I would say two watch out and one -- and maybe the reason we're a little bit more pessimistic on AC at this point than others, as we are starting to see inventory build in China. So people are running, but there's not a lot of exports yet from China. And so, we are starting to see some build up there. And so, I think until you see more of the Western hemisphere start to recover and you see consumers’ confidence come back, maybe some of the stimulus packages, especially for auto that are coming on, that's really going to drive the demand around the world, allow China to start exporting again. I think that's what we need to wait and see. And as of right now, we really haven't seen a resumption yet of China exports. Again, not a big impact on us directly but a big impact on some of our customers around the globe.

The next question comes from Jeffrey Zekauskas of JPMorgan. Please go ahead.

With oil prices coming down, some of your competitors probably have a lower cost structure than they did before. Does that lead to a weaker supply-demand balance in acetic or VAM?

Let me talk about again about China, because I think that's generally the swing producer. We saw a lot of China production online in the fourth quarter. We've actually seen some reduction in utilization in the first quarter, because of the very low pricing that we're seeing, I think people are choosing to run at lower rates, not necessarily shutdown but running at lower rates. So I think the thing is that price is just so low. So especially in China, we're at maybe $300 per metric ton today. We saw that price down in the $260 range early in April. It was at $300 or less in March, that's just not a price where folks can run out of a coal base and it's not a great price even out of an oil base as compared to natural gas. So I think the advantage is there, it's less. I don't think it will impact our Clear Lake, but it is causing some producers to slow down, which is a good thing. And we've actually seen the price start creeping up again in the last few weeks from where it was. So there seems to be some discipline in the market, not to produce into a losing situation. But again, it depends how long this goes on. But right now I would say, you know coal is the marginal producer, which is China. And we are seeing some discipline in that market and we're seeing prices slowly come back up.

Jeff, just to add to that. I think it's important to remember that our view of oil is that we're relatively agnostic as a corporation to hire low oil pricing. And you are going to get some compression in some areas, but you're going to get expansion in other areas. I think I've already just talked about on acetic acid, you know you would not see a lot of movement in that cost curve. On VAM, you do get some compression but that's offset by some of the gains you get out of Singapore acetic acid. On the engineered material side of the equation as already stated, about two thirds of the pricing there's pretty sticky. So you hold pricing even as raws come down, but that's partially offset by our dividend out of Ibn Sina. So with those puts and takes, we feel like we can still generate pretty agnostic returns in any environment.

Can you talk about why you’ve deferred your larger capital projects? What the rationale is behind that? And how much operating income or EBITDA do you lose because of the deferral?

So we've reduced our CapEx projection for this year by about $150 million could be a bit more. of that, I'd say about a third of it is associated with the delay of the Clear Lake acetic acid expansion. Again, the reason for doing that is because with these low oil prices, Singapore becomes a much more, not more attractive in Clear Lake, but attractive enough that we decided it was better to preserve cash in this period of time not knowing how long and how deep this would be. We can choose to start that project up at any time once we start to see recovery or for right now we've just said 18 months. We've also, for our China localization projects that we were looking at, we've pushed it out a bit, because obviously we have a bit of a demand slowdown for our engineered materials, and we see that taking a little while to recover. So we've pushed it out a bit and we've also had some things change where we now are looking at minimizing costs by using some of our existing footprint preferably. So that's about another third, about $150 million. And then have a third that's kind of everything else, and a lot of that is just project re-scoping that occurred naturally, projects that we said to preserve cash and we can just push them out a year. So we're really just trying to be cautious, because we don't know how deep and how long this can go to make sure that we are preserving cash for the organization to maintain a good free cash flow.

The next question is from Mike Sison of Wells Fargo. Please go ahead.

Lori, I just want a little bit of clarification. I think you said for 2Q, adjusted EBIT could be down 150 to 250 . Was that relative to Q1 or 2Q ‘19?

Relative to Q1.

And then when you think about adjusted EBIT margins for the Acetyl Chain in the mid teens for 2Q. What is more important in getting those margins up, is it the volume, is it the pricing? And then if pricing is going to go up, what do you think drives that? Is it more oil going up? Is it more recouping of volume? Just some colour on what could get those margins better as the year unfolds?

Yes, I think they're all related. But I think it is more around the pricing. I mean, the last time we saw below $300 per metric ton pricing for acetic acid was in 2016. So it's been a long time since we've seen this level of numbers. So I think it really is more about seeing the pricing go up. Now, that really means demand recovery for acetic acid really dependent on China for that. I think that's where we'll see the recovery in the margins. But clearly as we have demand recovery, we get some bond recovery that helps the prices go up. Again, we're pretty agnostic to what happens to oil in this scenario - that's the beauty of our models, beauty of having three different sources of acetic acid around the globe that we can pull on depending on what's the best source and lowest cost source? So I don't see oil price being a big factor for us. But certainly, China demand, China exports, reopening of India and Southeast Asia, these are going to be the big factors that can help drive those margins backup.

The next question is from Vincent Andrews of Morgan Stanley. Please go ahead.

Good morning, and good to hear everybody's voice. Sounds like everyone's doing well. I'm wondering if you could just comment on what you're seeing or what you're thinking about the outlook for demand for VAM and for emulsions in the second quarter and maybe into the third quarter. Just wondering if you're going to have the same amount of flexibility going forward to shift product out of acid and into those other two materials?

So we have certainly taken advantage of that flexibility even in the first quarter. I mean, if you look in the first quarter from the fourth quarter, we sold 17% less tonnage into China. As they dealt with COVID, we moved that and we sold 27% more tonnage into the Western Hemisphere. We moved 8% more tonnage to VAM and emulsion. We have seen VAM and VAE hold up pretty well. We actually see some impact on that into the second quarter. We see the demand remaining strong for paints and coatings at least so far, especially for exterior paint. Now, maybe not as much for interior paints as people are wanting to line up at Home Depot and wait to go in. But we are seeing the advantage of that capacity that we've been able to add. So I think in Q2, yes, we expect certainly some pricing pressure on VAM and VAE and emulsions. And we hope we'll start to see some more seasonal recovery in demand as we see economy starting to reopen, but generally stronger than acetic acid.

And then if I could just ask you on an engineered materials, I appreciate and respect your comments on the ability to hold price in that two-thirds of that business, that’s certainly what we’ve seen in the past in lower raw material environments. I'm just asking with volume expected to be down 30%, 35%. Is there is there no mechanism for customers to come to you and ask for lower prices? Is it fully contracted or is it just not something you have to worry about?

I mean, of course people can always ask. Again, if we go back to what we see, about a third of that volume is really sticky, and that we’re the only person specked in. So they tend to not be price sensitive, they don’t have another option. The next third maybe has a couple people specked in. We've not seen a lot of movement that way. I mean, perhaps we will as we come up we haven't. The third that tends to be more price sensitive is more of the standard type grade and those tend to follow raws a bit more anyway. But we have seen some of the sectors continue to be very robust, medical pharma, paints and coatings to a certain extent, packaging from the acetyl side, food and beverage has been robust. So we expect those to continue and not to see a lot of price pressure there.

The next question is from Ghansham Panjabi of Baird. Please go ahead.

So Lori, just on EM segment specific to the first quarter, both volumes and margins were quite resilient, considering the late quarter sort of slow down globally. Was there any pull full forward of demand from 2Q? I mean you mentioned that the team generated high single-digit volume growth in the Western Hemisphere. Just trying to clarify that.

No, we really didn't see any pull forward. Auto actually was doing quite well in January and February in the Western Hemisphere. We actually had seen auto up a few percent in both Europe and Asia, and that really helped to drive some of the volumes in the first and second quarter. Obviously, consumer goods were down in the first quarter but generally, January, February, even the first part of March were pretty good, where the Western Hemisphere was able to offset some of the decline that we saw out of Asia. And even the Asia decline during that period was fairly moderate. Now, obviously that all changed kind of the second half of March and that's why we're projecting the 25% to 30% down for EM in the second quarter. But I really didn't see much volume pull forward.

And just more broadly, I mean you have obviously given us an assumption for each of the segments from a volume standpoint for 2Q. Can you give us a sense as to what you're embedding in terms of how June kind of plays out? I mean, clearly, most of the world's has got locked down for at least let's say half of the quarter. But how are you thinking about the back part of the quarter and kind of the exit run rate into the third quarter? Thanks so much.

We just looked at the second quarter as a whole. We’re really assuming we don't see much recovery even through June. And if we look at auto, for example, China autos restarted but it's a bit slow. Europe is kind of starting this week, but a pretty low rate. BW for example in the ID-3, one of their platforms that we have a lot of content in, is making 50 cars a day versus what they typically make 150 cars a day. The U. S., autos are just now starting to announce they're going to restart originally some May 4th, some May 11th, most of the big plants, not till May 18th. So, we really don't see them coming up closer to full rate until late June or even early July. So, that's the effect when we break in. Obviously, as they get started sooner that's good.

The next question is from Matthew DeYoe of Bank of America. Please go ahead.

So if we look back at 2015 and 2016, the acetyl chain business generated about $600 million in annual EBITDA. Perhaps directionally you're pointing there in 2Q, but we have some outages and whatnot. So why or why not is it possible that the company kind of returns in that EBITDA in that segment? We'll start there.

We typically assume, we think our acetyls business is kind of a base level of earnings in a normal environment between 180 and 200. So if you look at our earnings in first quarter, just call it 144 for easy math. You know we had about 15 million in there for the -- that we didn't have for the fairway turnaround, there was 15 million to 20 million of COVID impact. And then first quarter, typically we see 10 million to 15 million of seasonality. So that gets us in that one 180 million to 190 million range that we would expect to see from acetyls. So I think what we’ve showing is versus even 16, 17, we have fundamentally shifted the acetyls base level of earnings again, kind of up to that 180 to 190 but with COVID, with the turnaround , the first quarter we saw slightly lower number in the first quarter.

Matthew, I think it's important to remember a lot of the steps that we've taken over time in the acetyl business to get us to that higher level of earnings. Reducing the fixed cost footprint, consolidating manufacturing at our large integrated facilities, continuing to lower the S&A cost structure in the business. And then further going downstream, in the past, we used to sell about 60% of our acetic acid as acetic acid and now we only sell closer to 40%. And we moved that downstream into a VAM emulsion and now into redisposable powders through the Elotex acquisition. So those very purposeful steps taken over time have led to that higher level of earnings in normalized environments.

And then it's price in EM was down 5% year-over-year in 1Q, I would imagine it's probably going to be a little bit worse than that in 2Q. To some extent, I guess it's not surprising given the moves we've seen in the oil. But if I look back to the last time, crude really collapsed in ‘15, ‘16. We never saw a price kind of eclipse the minus 4 number. Is this because price isn't as sticky in some of the newly acquired businesses and you talked a little bit about that margin level and I would imagine things moved down in 2Q, but that mid 30s, what you’d consider normal from here?

I think there's two things there. So we did have the raw material pass through on that kind of third of the business that is more directly tied to raws. I think that's similar to what you would have seen in ‘16. There was also an element, Q1 ‘19 was really an exceptional EM quarter and there's some timing elements there around contracts for medical and pharma some high margin businesses that showed up in Q1, which is different than Q1 ‘20. So Q1 ‘19, we had some big contracts that showed up in the book. Q1 ‘20 is, I would say more normal. So there is that variation there. I mean, we would expect as raws continues to be low and as we see volumes come off, some further impact to margins for engineered materials and volumes, like I spoke about earlier. But I don't think that Q1 ‘19 to Q1 ‘20 change that you're seeing is representative, because there were some uniqueness in Q1 ‘19.

The next question is from John Roberts of UBS. Please go ahead.

Thank you. And congratulations, Lori, on assuming the chair person role. The smokers seem to be more susceptible to the more severe COVID-19 symptoms. They're guiding for stable cig tow for the rest of this year. But do you think this over the next 12, 24, 48 months, will accelerate the decline in cig tow overtime?

You know, it's a good question and one we've asked ourselves. But I have to say tow has proven to be probably our most resilient sector. People who smoke tend to do it no matter what, and if anything, maybe they do it more when they're home. So just a bit anecdotally, in January and February when this was really hitting China, we actually saw tow production, cigarette production up 4% in China, and sales in China actually went up by 1%, which -- that versus 2019, which doesn't sound like a lot but in a business where we expect, a couple of percent decline per year, that was certainly a reversal of the trend. We haven't seen similar numbers yet for Europe and for the Americas. So we have to wait and see. But as of right now at least in our conversations with the cigarette producers and others, they are not seeing a big change in demand profile.

And then in engineered materials, you noted some challenges in getting new applications qualified with social distancing, while your customers having employees working from home. Do you think you have that solved or will have it solved over the next couple of months, or will it be constraining it any in any way, because demand is so weak it's just not going to be a constraining part of the supply chain or the value added?

I mean, look it's a great question. And certainly with COVID, we have found many new ways of working. I would say our employees or even ourselves, people, everyone continues to be highly productive and effective at home. Interestingly enough in EM, while we have had some issues getting new projects qualified, we have been able to continue to progress many other projects. So a lot of our customers have lab staff working, they're doing it. In some cases, our lab group, our technology and innovation group has actually been working with some of the customers to qualify the materials on our lab equipment. And so sometimes we've actually taken over and done some of the testing for them at our facilities for those customers who couldn't use theirs. So our folks have been really creative to keep some stuff going. Similarly, we've continued to provide great customer service. I want to share with you an example we had. We actually had a customer in Germany who had a moulding issue and our technologists were able to get on the phone via iPad and basically troubleshoot the problem, using iPad video with the customer. So our folks have been really creative. While we certainly have, we still closed the number of projects in the first quarter we expected to, we aim to do the same in the second quarter. We're just having to be really creative and really flexible in how we work and what work we do for our customers to make it happen.

The next question is from John McNulty of BMO Capital Markets. Please go ahead.

With regard to the acetic acid markets in China specifically. Have you seen any permanent closures? And I guess how long would we have to see this recessionary environment drag on before we might actually start to see some of maybe the more marginal capacity just get permanently shut down? What are your thoughts on that?

So I would say to-date, we have not seen any permanent closures. And part of the reason for that is I think a lot of the acetic acid capacity in China is tied to downstream uses at the same company. So, they're part of the value chain for other companies, not necessarily VAM, VAE, but maybe going into plastic bottles or this sort of thing. So, what we've seen though is we have seen people slowing down capacity, so only matching their capacity to what they internally consume. I think, it will take a bit longer at these kinds of prices before we see people permanently shut down. But we have definitely seen people take, go run at lower rates, which has helped. We were really low in terms of tiny utilization in the first quarter. Those numbers are still low, just below 70%, but slowly coming back up if people cut back on runway rates to more match their downstream, internal downstream consumption. So, I don't know how long it's going to be, but I think it will be longer before we see any permanent shutdown of spare capacity in China.

And John, we're focused on what we can do to control things. So we're controlling our own operating rates. We're focused on productivity, as Lori talked about. We're focused on what we can do from near-term cost reduction actions. So, those items that we have control over ourselves is where our focus needs to be. So as we see the changes in demand pivot in the coming months, we're well-positioned to take advantage of that.

And then just I guess with regard to the engineered materials platform, I guess the magnitude of the sales drop seems a little bit on the higher end I guess than what we were thinking, especially considering you do serve some pretty defensive markets as well, like on the healthcare side. So I guess can you give us in terms of how you're thinking about the buckets of your cyclical portion of that business and maybe defensive side. What you're thinking in terms of the volumes for those?

I mean, on the kind of resilience side, I mean obviously I talk about tow, that's 15% of our revenue. And then we have medical pharma, food beverage, even 5G, packaging, that's kind of another 10% to 15% of our revenue. But some of our big users like for the entire company autos is about 15%. Until people start up, although, they're sticky businesses and they will come back and order from us, they're just not taking volume. So, that's really what's built into that, as well as consumer electronics and people are just not buying big durable consumer goods right now. They're worried about jobs. They can't get out. All these kinds of things. So I would say, it's not so much that we see people shifting away from our engineered materials. It's just they're not running so they're not ordering. If you look at even in Q1, we saw -- we lost about $10 million in volume in orders just in March through the cancellations, about 50% nation, 50% in other places. And in Q2, automotive is a big decline drop. I mean, April was 50% lower in terms of automotive demand for us than it was in 2019, and in the America that was 80% lower. So, these are sticky businesses but if they're not running, they're not ordering. Now in non-auto, we're nearly flat for 2019. So again, it's just that balance of those highly resilient, those that have kept running and had high demand and those that haven't been as resilient like auto where we've just seen the demand basically go to zero for a period of time.

The next question is from Kevin McCarthy of Vertical Research Partners. Please go ahead.

With regard to your CapEx program, I think you indicated you're deferring capacity expansions for methanol and acetyls by about 18 months. Do you still plan to reduce capacity in Asia? And if so, will the acetyl capacity reduction there be concurrent with the new timeline?

Yes, so our plan all along has been it was really we justified the product, that project on productivity. So our plan would be to reduce capacity in Asia in that same timeframe. So in that ‘20 to mid 2023 timeframe. Again, it could be a shutdown of the facility or it could just simply be a reduction in facility. And that's a decision we'll make sometime later once we see kind of how raw material dynamics and demand even out over the next few years.

And then on Page 9 of your prepared remarks release last night, I just had a clarifying question maybe. You're talking about the free cash flow improvement there of 300 million to 400 million, and I think it's equated to 40% decline in adjusted EBIT for acetyl chain and EM. I guess my clarification is, is that 40% in fact your forecast, or are you just sizing the magnitude of the free cash flow improvement there?

Kevin, we're just sizing it for Q2 through Q4, that's really what that point was about.

And if I may, I want to sneak in another one for you, Scott. There's a reference to I think a tax relief provision that's expected to benefit you by $40 million to $50 million. Can you just talk a little bit about that and when you would expect that cash in the door?

Yes, this is mostly just timing, Kevin, and it's a lot of the stimulus packages that have been passed around the world. Actually the lesser of that number is the U. S., we have a pretty substantial impact from German payroll tax deferrals. So it's really just deferment to 2021 or 2022 on payroll taxes.

The next question is from Alex Yefremov of KeyBanc. Please go ahead.

Lori, just to clarify, EBIT decline sequentially, you mentioned 150 million to 250 million range. Was that for the company overall or for EM segment only?

No, that's for the company overall.

And turning to acetyls, just based on benchmark margins we're estimating that they were quite healthy in March and April if we look at acetic acid versus methanol, or VAM versus ethylene and acetic acid. Is that in fact true when you look at your business? And if so, are you expecting this level of margins that we saw in March and April to persist in the latter parts of second quarter?

Scott may want to provide some detail as well. But you know again, if we look at, we actually saw prices drop very low at the end of March and in early April. And you know at those kind of prices margins in Nanjing where you have methanol coming out of coal are not that good. Clear Lake out of gas still a margin, but significantly compressed from the margins that we've had in the past. So I think we continue to see that challenge with acetyl margins going forward even in the low methanol environment again, because price tends to fall a little bit.

I think we did seek a lot of compression in the first quarter, as Lori stated, Aleksey. And in the last week, we've seen a slight bit of expansion but we saw these periods and pockets at various points in the first quarter as well. So until we see I think more robust exports moving out of China and demand improving in other parts of the world, I don't think you're going to see a big change in that dynamic.

If I just may clarify, you do expect your acetyls margins to decline sequentially?

No, I think we expect to see things relatively flat right now Aleksey, that's we’re baking in, given that demand landscape that we talked about. And I think it's important, we're more or less on the floor here for methanol in China given where the coal producers’ cost structure is and given where methanol prices are at. So we may see things move a little bit in the upstream feedstock landscape, but material movements up or down, given the inventory levels and given the cost structure, we just don't don't see things moving a lot.

The next question is from Frank Mitsch of Fermium Research. Please go ahead.

As I parse through the various forecasts and understanding this isn’t an exact science. Where you think the coronavirus impact is, I mean, obviously very significant impact here in 2Q. But as I look at the numbers, is it fair to say that as things stand today you think the impact from coronavirus, if we were to say parse up 100% for the balance of the year, it would be like 50% impact in Q2, I don't know 30% in Q3 and 20% in Q4. How are you currently thinking about the pace of the impact for the balance of the year?

We've done a lot of scenario planning and again, we don't expect a V-shaped recovery. So we do expect some continued impact. We've looked at U-shape recovery, which we'll start to see some recovery in December. We look at L shape, which has it going down into 2021. I think the answer is, we don't know even with things opening up, we have yet to see. Couple of things when does the Western Hemisphere automakers return to full production, when will we see enough relaxing the social distancing in the U. S. and Europe for people to go back to painting and as well as allow for construction to go back to seasonally normalised levels. And then as I said earlier, when do we see that improvement in China export, because we're not seeing that yet. So even though China is running, we're not seeing enough demand outside of China to really resume the pace of China export. So I think there's still a lot of unknown, a lot related to consumer confidence, stimulus packages can help. We're waiting to see how that stuff goes. But I don't think we can really predict accurately at this point what we will see in third and fourth quarter.

But I was looking at that comment from Scott about the acetyls and EM being off 40% for the balance of the year. And so it just seemed to me that it was a bit more front end loaded in terms of the impact for the second quarter and perhaps in terms of the year-over-year negative impact, it would be lessened for the balance of the year. But at this point, do you think it's maybe a little bit too premature to offer that?

Yes, that 40% was really illustrative of what that magnitude of cash flow reduction would magnitude of cash flow reduction would equate to. So that's how I read that.

The next question is from Matthew Blair of Tudor, Pickering, Holt. Please go ahead.

Good morning, glad to hear everyone is safe. I want to touch on that 5% of volume gain in acetyls, which I think occurred despite some turnarounds. Would you say that was just normal quarter-to-quarter volatility or do you have a strategy to try to take share in this weak market and offset some of the price declines?

So we had the volume gain from fourth quarter. Remember, in fourth quarter we had the issue at our Clear Lake plant and it was down. And so, we had more volume available in Clear Lake obviously in Q1 than we did in Q4. So, that volume uptake really reflects the additional production in Clear Lake offset slightly by the COVID impact in Asia.

And then any sense on the timing of the $150 million to $250 million working capital benefit that you expect? Would that be mostly in Q2 or kind of spread throughout the year? Thanks.

So I think , there can be a chunk of that that is Q2 as we see the more acute demand impact that Lori talked about happening in the current environment, and we will gain working capital here. So, we will see that. We do expect with really actions that we're taking and this is not a new thing for us. We've been heavily working by working capital actions around accounts receivable, accounts payable over the last several years. And this environment really gives us that opportunity to push hard on the inventory side of the equation also. So, there's some sustainable actions that we're taking in addition to just kind of the drop from sales coming off. So, we'll gain a lot of working capital in the second quarter, but we do expect some of those actions to yield benefits in the back half also.

The next question is from David Begleiter of Deutsche Bank. Please go ahead.

Lori, Scott on the acetyls base earnings 180 to 190. I know you said you're agnostic to oil price changes. But why isn't there some variability at $25 oil price versus $50 oil price for the base level of earnings in that segment?

So David, I think what we’d say as a company, we're fairly agnostic. I mean you will see a little bit of an impact in AC, which is my bridge including seasonality gets you to the lower end of that 180 to 200. Clearly, you will see some impact in AC. But that said, we see a little bit of an offset in EM where our prices don't typically for about two-thirds of our volume, the prices don't track down with raws. And so we get a little bit of margin expansion in EM that offsets the compression of margins we see in AC.

And just in EM just on the affiliates, what's happening with Ibn Sina given the low MTBE margins these days?

So David, our dividend there's on a one quarter lag. So what came through in Q1 is what we saw from Q4 and then likewise here stepping through into Q2. So we're going to see most of that impact in the second half of the year that we're seeing MTBE follows oil, so pricing is coming down and we will get some compression there. On the flip side in the EM segment, you'll get upside from where we get margin expansion where we have pretty sticky pricing as we talked about earlier.

The next question is Laurence Alexander of Jefferies. Please go ahead.

Do you see any opportunities to or do you have any interest in acquiring downstream acetyls assets and then hold them into your network to further optimize or give you more degrees of freedom? And secondly, can you remind us where you are on the innovation cycle in acetyls? I mean, roughly how many years [Technical Difficulty] before we see significant innovation in OpEx and CapEx on new projects?

Yes, you broke up a little bit, but let me answer the first one. So I mean clearly, we just completed the acquisition of Elotex that is adding down to the backend of our acetyl chain with redisposable powders. We're really excited to have close that deal despite having to do it remotely. It is a fast growing market and we think it's a great addition so we do continue. I think it's just an example, we do continue to be very interested and continuing to expand our assets sale chain where it makes sense to deliver greater shareholder value, which we think Elotex did that. In terms of innovation, I mean we continue to be very flexible with our acetyl chain. We like the model that we have, which gives us a lot of optionality and gives us a lot of ability to pivot. I gave the example earlier of the amount of tonnage we can move geographically, as well as tonnage downstream. Our teams continue to innovate constantly around VAM and emulsions, and offering new products to our customers. So I think we're doing very well there.

The next question is from Jim Sheehan of SunTrust. Please go ahead.

When we look at natural gas prices in Asia and specifically China, they're moving lower into the region naturally of coal prices. I'm wondering how you think that's impacting competitive dynamics in China? How sustainable might that be and does that really affect the acetyl chain at all?

I don't really know much about natural gas these days, so I can't say how sustainable that will be. What I will tell you is acetic asset equipment in China is built around coal to methanol base. It would take an amount of investment in order to convert that to natural gas and ethanol base. So I don't see that happening quickly. I think you would have to have a very sustained period of competitive and low natural gas prices, as well as some assurity of continued supply before you saw people willing to make that investment away from coal to natural gas.

Jim, natural gas is earmarked for personal consumption. There's very little chemical production based upon natural gas, and we just haven't seen a policy shift in that direction.

And on social distancing, you know you talked about the impacts that might have on new project development. I'm wondering about maybe you could comment on how it's affecting your integration of acquisitions like Elotex?

Social distancing, besides the fact that we have about 2,000 people working from home these days, we still have another roughly 6,000 people working in our plants. And so we have learned how to operate with social distancing using personal protective equipment as needed. I think that's gone very well and we've been very fortunate. We've had no cases of COVID-19 transmitted at work. And so, I think we can learn to operate in this way. I think it's been good. I think people other -- we see the same thing in other industries, and socially people are learning to work this way, but we just need to get consumer confidence back.

That concludes our time for questions today. I'd like to turn the call back over to Abe Paul for closing remarks.

Thank you, Brock. We thank you for your questions and listening in today. As usual, we are available after the call for further questions you might have. Brock, feel free to close out the call at this time.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.