Hello, and welcome to the Celanese's First Quarter 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to, Brandon Ayache, Senior Director, Investor Relations. Brandon, please go ahead.

Thank you, Kevin. Welcome to the Celanese Corporation's first quarter 2021 earnings conference call. My name is Brandon Ayache, Senior Director of Investor Relations. With me today on the call are Lori Ryerkerk, Chairman of the Board and Chief Executive Officer; and Scott Richardson, Chief Financial Officer. Celanese Corporation distributed its first quarter earnings release via Business Wire and posted prepared comments about the quarter on our Investor Relations website yesterday afternoon. As a reminder, we will discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements which can be found at the end of the press release as well as prepared comments. Form 8-K reports containing all these materials have also been submitted to the SEC. Because we have published our prepared comments yesterday, we'll now open it up for your questions. Kevin, please go ahead and open the line.

Thanks. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from John Roberts from UBS. Your line is now live.

Thanks and congratulations on the upside to the – upside guidance, I guess, you gave back at the end of March. Lori, you sourced methanol in Texas during the quarter to restart your acetic acid capacity early. I think, methanol was really tight as well. So, how did you do that?

Yes, it’s a great question, John. I would have to say our folks were very proactive. I mean, we saw the weather coming, it was predicted. We anticipated we would need to shutdown. We anticipated that there would be tightness in the market. And because we're out in the market, every single day looking at what's available, our folks were able to go out there and kind of really sourced that material, even before we went into the freeze. And look, we sourced quite a few materials going into the freeze in anticipation of shutdown, and wanting to make sure that we could supply our customers as best we can, recognizing that we thought there would be some disruptions. But I think it's just really a factor of the model and the fact that we're always in the market. So, we don't need to activate a new team to go do anything. When we see something like this coming, we're already out there taking advantage of what's there in the market.

Thank you. [Operator Instructions] Our next question is coming from Bob Koort from Goldman Sachs. Your line is now live.

Good morning. This is actually Mike sitting in for Bob. Lori, just a question for you. Can you speak to what happened over the past month that improved visibility, or I'd say increased your confidence to raise a full-year adjusted EPS guidance again by another $1.75 midpoint to midpoint?

Yes. If we go back to Investor Day, although we had the Investor Day what's the 25th of March. We actually kind of locked in our guidance and our numbers about a week in advance of that, let's call it mid-March. And at the time that we locked in our guidance for Investor Day, we were really seeing some softening in methanol prices in China and we were anticipating even on the back of Uri, and we were anticipating that trend might continue. Now, having said that, we also had some uncertainty around Uri. We had some uncertainty around how – what we would want off, what we wouldn't, what the total of those would be. And in fact, we had some of that baked into the guidance, some of which slipped into second quarter because it came with invoicing, timing and it came with materials and inventory, et cetera. But then what we really saw is right around the time of Investor Day, we saw prices take off again in China and really versus where we had been in March, which was around, call it, $700, $750. Really in the last many weeks, we've seen prices greatly increased and now we're sometimes over $1,000. And it's not just acetic acid, but it's also the fact that them and other derivative pricing has also followed, something which hasn't always happened in times of high pricing before. And during a period where methanol pricing is high, but not as high as say, we saw in 2018. So, a lot of factors coming together that have really given us very, very healthy margins in the Acetyl Chain going forward, as well as the continued strength and growth we see in engineered material.

Okay. And just as a quick follow-up, I mean, when I look at the new full-year guidance of $12.50 to $13.50 and kind of considering the significant strength that we've seen in the first-half, it doesn't seem like it takes much to get there. And I mean, even if Acetyls are, say, toppy in the second quarter and earnings fall back to maybe that first quarter level around $3.50-ish for the third quarter, then you would only need about $2 of fourth quarter earnings per share to reach that guidance. So, I guess I'm trying to better understand, what have you baked into the second-half? And maybe why won't earnings be a bit more resilient during the back-half of the year?

Look, I think we’re always – we'd like to guide based on what we have visibility into. We don't really have any visibility into the second-half at this moment in time. We expect continued growth in EM after a flat second quarter. We do expect continued growth in the third and fourth quarter for EM. But in Acetyl, we expect to start to see some moderation in pricing as we get towards the end of the second quarter. We expect that will continue to moderate through the third quarter and be back to more typical levels in the fourth quarter. And that really was the basis for the guidance that we gave was those assumptions about what would happen in the second-half. And obviously, it may be different. We have to make assumptions around methanol pricing, crude pricing, everything that's happening there. But that was the basis for the guidance that we provided.

Thank you. Our next question is coming from David Begleiter from Deutsche Bank. Your line is now live.

Thank you. Good morning. Lori, you mentioned some outages in China that could be pushed into Q2, plus the asset base there is getting older as well. So how are you thinking about outages not just maybe in Q2, but longer-term in China, both planned and unplanned?

Yes, so there was a number of outages we were aware of in China that were planned in the first quarter. A lot of those are pushed to the second quarter based on the strength of the market in the first quarter. Look, some of those, they may be able to push to the third quarter, we don't know. But at some point, those outages will need to happen. We know elsewhere in the world, there are some outages that are taking place in the second quarter. And it's just a big factor right now, with the tightness of the market when people choose to take planned outages. And, of course, unplanned outages are – can also be a factor as we go forward. But we won't know what those are. But we do know there will need to be some outages in the second quarter. Again, some may get pushed to the third quarter. We're just happy to say we took the opportunity last year to take all of our turnarounds and necessary steps and aiming back moving the VAM turnaround in Clear Lake from second quarter taking it during the forced downtime with the winter storm, so that we're able to run fully going forward.

Got it. And just the inventories, how long will it take to rebuild inventories at the customer level do you think?

If that's really the basis for what we're thinking about acetyl pricing, we think it's clearly going to take into the summer. So through second quarter moving into third quarter to really start inventory levels, start returning to near normal levels. And again, that is going to depend on what outages people take, is there any unplanned outages then that sort of time. But I would assume it's going to take into the third quarter before we see people back at near normal levels of inventory.

Thank you.

Thank you. Our next question is coming from Vincent Andrews from Morgan Stanley. Your line is now live.

Thank you, and good morning, everyone. Maybe just a question on the infrastructure bill that's out there it's been proposed, as obviously has some ideas about how the corporate tax rate environment is going to evolve. So, I don't know if you have any thoughts around that or if you're any particular provisions about it within it that are concerning or the change in the guilty provision would impact you or just – maybe just any general thoughts on what could happen to your tax rate?

Yes.

Yes. Thanks, Vincent. I think, as we look at it, it is still too early for us to really understand exactly where things will land. But we are looking at each component of the various proposals that have been rumored right now. And there – I think there are ways at which I think with our global network that we will work to mitigate, whatever may come about. And I do think, going back even a year ago, we did call out that we would expect to see our effective tax rate possibly move up a few 100 basis points over the next several years. And I wouldn't come off of that right now. I think as we look out a couple of years, regardless of what happens with U.S. tax changes, I think we still believe the changes to our effective tax rate will be in that range.

Okay, that's helpful. And Lori, maybe just a question in EM. You haven't really seen any negative impact from the chip shortage in autos yet. But your guidance seems to imply that you're anticipating that there'll be some fall off. And I'm just curious, what the trigger for that is going to be just given you haven't seen it yet?

Yes. Vincent, that's exactly what we're assuming in the second quarter. I mean, we really have not seen much impact from the chip shortage yet, again, primarily because we've been in luxury vehicles and platforms like trucks and SUVs, which have been prioritized by the automakers and not affected as much. Now as this drags on, we are starting to see, and you probably saw some announcements by some of the OEMs this week that they are curtailing production for a period of time because of chips that we do think that will start to affect us in the second quarter. There's also some resin shortages, quite frankly, in the industry that is also impacting the automakers. And you might see something into that around that, especially around nylon and some other materials. So, we do expect to see some impact in auto for us in second quarter, which is why we're calling second quarter flat on EM. But we also expect most of issues to be resolved through the quarter and back to more normal levels by third quarter.

Okay, thanks very much.

Thank you.

Thank you. Our next question is coming from Duffy Fischer from Barclays. Your line is now live.

Yes, good morning. If we think about the delta from your original guidance with the midpoint in $9.75, going up $3.25 to $13. If you just back that through your shares and let's say a 14% tax rate, that's about $440 million of EBITDA. Is that a fair way to think about it? And if it is, what's the delta in free cash flow? Because my guess is there are some more puts and takes, working capital probably needs a little bit more cash with higher prices. But, if we could work off that $440 million, if that's the right number increment, how would that flow through the cash flow statement then?

Yes. Duffy, I think the easiest way I think to look at is originally we said, we're going to do about $500 million of repurchases this year, and now we're saying we're going to do an incremental $200 million to $300 million over that. I think, we – that really is tied to that incremental cash flow that we have this year versus what we had originally planned on. And you highlighted where the delta is, it's really on the working capital build. And so it really is just a timing thing. We think that recovery of that, call it, $450 million of EBITDA, the balance that we weren't generating free cash flow, we would expect to collect as we get into next year. So a lot will just depend on how working capital develops for the balance of the year. But right now, our projections are is we will have a working capital build. And it's driven by the fact that pricing is moving up, but also that raw materials are moving up.

Fair enough. And then maybe just one on the strategy side. Would you anticipate any competitors announcing a major greenfield acetic acid plant this year? And are your customers pushing you to do something larger there? Obviously, you had the issue of Clear Lake before the freeze even. And I think some customers just said that, there's so much riding on that one plant. They would like to see some diversification. Can you just talk about your footprint going forward on acetic acid? And do you think others will announce builds this year?

Well, I can't really talk to what others will do. I have no idea. We do know there is some capacity coming up mid-year here in acetic acid in China. So, certainly that will help China. We are, of course, doubling our capacity in Clear Lake, so the equivalent of adding 1,300,000 ton facility in Clear Lake. So, another world-scale capacity facility. Look, Clear Lake is the cheapest producing acetic acid in the world. I think customers are happy to have that kind of stability in the Gulf Coast. And I do – I expect others to announce maybe do they ultimately get build? That's always a bigger question. I think, no one's going to build on what they see as a surge in pricing, it really has to be a sustainable level of pricing. And I mean, look, you can't just go put an acetic acid plant anywhere. You need to have the access to methanol or some form of syngas. You need to have access to CO2. You need RCO. sorry, you need to have access to hydrogen. So this is not something that you can easily say, I'm just going to go put a plant somewhere. You need to be in industrial area. You need to have access. And frankly, it's what keeps acetic acid plants from being built kind of everywhere in the world is these other components. So, what I would say is there may be an announcement, I don't know what others will do. But it's also three to four years kind of minimum before anybody could actually have one online.

Great. Thank you, guys.

Thank you. Our next question is coming from Ghansham Panjabi from Baird. Your line is now live.

Thanks. Good morning, everybody. I guess, first off on the velocity of pricing that you're seeing in the AC segment across your major commodities. How does that compare to the 2018 peak? And then related to that, entry levels across multiple supply chain seem to be very low based on commentary, that's probably in the earnings season and prior to that. And so even as supplies sort of gets rebased, higher post the first half disruption, do you think it will be at a higher level for longer sort of dynamic relative to the duration and spike that you saw in 2018?

Yes. Let me talk about that a little bit, Ghansham. We of course do expect a record Q2 in acetyl, as we laid out in our documents. And I think it's really based on a couple things. I mean, one is we have had a significant lift in foundational earnings, even since 2018. So we've added RDP, we've got other capacity around emulsion, and VAM, through low-cost bottlenecks. We've continued to refine the model. And frankly, we've just gotten better and better every year about how to use the optionality available to us, and how to really flex our model. We've also seen improving industry dynamics. Acetyl is growing a couple -- a little bit over GDP every year. We haven't seen any major capacity addition. So it's a better industry dynamic as supplied or supply demand chain. If you look at 2018, 2018 was very much supply-driven. Inventory and demands were pretty much at normal levels. But starting at the end of '17, you saw a whole series of shut down in the industry, especially in the Western Hemisphere, which really drove a supply shortage, and drove that price up to that $700 to $800 a ton. Remember, that was that methanol around $450 or so, crude was around $80 right then. 2021 is fundamentally different is that we went into this, it's both the supply and the demand problem. I mean, we've seen really robust demand since at least the fourth quarter of '20, as the world moved into recovery. And again, not just in acetic acid, but also in VAM and emulsion, which is a little different than 2018, which is really focused on acetic acid. And our inventories were very low as we went into this year into 2021. And that was true globally. So it's…

Thank you. Our next question is coming from Jeff Zekauskas from JPMorgan. Your line is now live.

Thanks very much. How have you been handling the inflation in ethylene prices in the United States? I think spot ethylene is maybe $0.64 a pound. Are you able to buy much, much more at contract? Or is this an inflationary factor that you're feeling?

Jeff, I mean, we're certainly feeling the inflationary factor. I think the good news is we anticipated this coming back in fourth quarter of last year already, and started moving prices and engineering materials to reflect this. And of course, that price also may still get reflected more quickly. So, although it is an inflation pressure, we've been able to push that through in our pricing, and basically maintain the same level of variable margins.

And then for my follow-up, can you -- so your adjusted tax rate is 14%. And you have this tremendously profitable U.S. operation. How do you keep your tax rates so low? Why isn't your tax rate higher?

Yes. Jeff, I think it's important to remember, we still have a fairly sizable portion of our earnings that come through from our equity affiliates. And that comes in at an after tax rate. And so, it is important to keep that in mind and that is one of the factors for the tax rate remaining low. And I do think after U.S. tax reform, it has given us certainly some advantages from the U.S. side of our operations. But we really are a global operation, which about a third of our sales in the U.S., a third in Europe, and a third in Asia. And so, that rate has been able to remain very low, because of that balance. Now, what you're seeing is we had originally guided to an effective tax rate of 13% for this year. But with the elevated earnings we're seeing in some of our higher tax jurisdictions, particularly China this year, we actually see that moving up, and that's why we raised that guidance to 14%.

Okay, great. Thank you so much.

Thank you. Our next question is coming from John McNulty from BMO Capital Markets. Your line is now live.

Yes. Thanks for taking my question. In the acetyl chain, how should we think about the risk of any demand disruption? It seems like there's a lot of other commodities that are up as well. Have you seen any demand disruption at this point? And how should we think about that?

Yes, we really haven't seen any demand disruption, John. There is always the possibility, of course, vinyl acetate could go to acetate. But I mean, that's not a cheap switch, nor that one people are going to do in the short-term. So at this point in time, we've really been just trying to focus on keeping our contract customers supplied with what they absolutely need at this point in time. And we haven't seen any signs yet of demand destruction because of switching to other commodities or for other reasons. In fact, we just see demand continuing to strengthen across the globe.

Got it. That's helpful. And then I guess, the follow up question would just be given the severity and proliferation of all the outages that we've seen, have you seen a flurry of interest from customers looking to kind of partner with you in a more meaningful way, and maybe willing to pay higher prices for the stability or the surety of supply? And like, how should we think about that, as it plays out over potentially the next few years in terms of stabilizing your platform even more?

Yes, we certainly have seen, I'd say across all of our businesses. We have seen customers more interested in contract arrangements versus just spot arrangements, because quite frankly, we've prioritized our contract customers as we've had shortages both in acetyl and in EM. Those customers that we have contracts with, we have worked very closely to make sure we could get them, again, not necessarily all the volume they wanted, but the volume they absolutely needed to keep running so that they wouldn't have any plant shutdowns or outages. For those non-contract customers, we haven't been able to do that. And so, certainly we see that driving more people into wanting to have contract type arrangements that we've had in the past.

Thanks very much for the color.

Thank you. Our next question is coming from Hassan Ahmed from Alembic Global. Your line is now live.

Good morning, Lori.

Good morning.

Lori, just wanted to sort of revisit the back-half guidance, specifically on the Acetyl Chain side of things. Obviously, conscious the fact that you guys just have visibility call it through June. But, just in hearing some of the remarks that you made, turnarounds, certain turnarounds being pushed into Q3 call it then the impact of Uri. Obviously, the fact that inventories are fairly lean even pre the winter storm and they got even tighter and it will take us through call it Q3 just to normalize inventory levels. And then, there's the whole back selling of orders side of things and the like. So long story short, I mean, is there a fairly high probability that this moderation in supply demand fundamentals and pricing that you're looking for within Acetyl Chain could actually surprise to the upside? Just keeping all of these sort of moving parts in mind.

Look, there's always that possibility. I mean, can we put out guidance based on where we -- kind of our assumptions about what we think is going to happen, especially through the third quarter, I think, is the real question here. Obviously, look there's new capacity coming on in the third quarter in China. So we've baked that into acetyl, that should help stabilize the supply demand situation there. But, if we had -- if we saw extended turnarounds, if we saw unplanned outages, I mean, clearly, that could extend this period of higher pricing for longer, and could result in an upside. It's always a possibility for sure. But this is our best outlook. And you have to remember, we still do expect seasonality in fourth quarter. I mean, seasonality is pretty typical, we even saw it last year, especially in acetyl, as you see, the construction market generally ramped down a bit because of weather and other constraints in the fourth quarter. So you should still be baking in some seasonality in the fourth quarter back to a more typical level.

Understood, understood. Very helpful. And as a follow-up on the longer-term side of things, obviously, we've been hearing about the Biden's sort of greenhouse emission reduction plans, as much as 50% by 2030. How do you feel that you guys are set up to execute, call it in line with that? And how you guys are thinking about sort of the CapEx associated with that, in the run up to sort of call it 2030?

Yes. Unfortunately, there's not really enough details out about the plan to know what that really means in terms of how it’s measured, can you get credit for materials that you make that help, for example, for light weighting, and things that help to reduce other people's greenhouse gas emissions. I mean, let's be honest, on the one hand, it's a real opportunity for us, because many of the products that we make will be needed by others to meet that kind of a commitment. Even in the construction industry, if you think about acetyl, and how much of that goes into weather proofing and insulation and things like that, which would also be necessary. It could be a huge opportunity for us. As far as reducing our greenhouse gas emissions of our own facility that really has to do with heat recovery, lower furnace firing, uses of alternative energy, like our solar contract at Clear Lake, as well as recovery of -- venting of CO2, which in like, we're doing it Clear Lake, maybe there's options to recycle back into our operation. So, I don't know. We don't know yet, is it possible to reduce our own footprint by that amount. Again, we need to see the details of the plan. But I would say in general, it's probably more of an opportunity for us than a threat at this point in time.

Very helpful, Lori. Thank you so much.

Thank you. Our next question is coming from Frank Mitsch from Fermium Research. Your line is now live.

Yes. Good morning. Let me just follow up on that second-half outlook question. The pace of buybacks is set to slow down in the second-half. Is that more a function of that lack of visibility in the second-half? And is that something that you may revisit, when we -- depending on how the results come in?

Yes. Look, I think what we were trying to indicate is, we'll have done kind of $500 million of buybacks in the first-half. As we see our financial outlook improving for the full-year, we basically showed that additional cash available to us as buybacks to make sure that the shareholders will benefit from kind of the additional earnings this year. If we have higher earnings, I would anticipate we'll put those into buybacks. But it still doesn't change our desire to do significant M&A this year and next year. And remember, we still have a billion even after these buybacks we will still have a billion dollars on the balance sheet in order to put towards meaningful M&A. So I think it really was more of an indication, if you will, and our belief that we want to make sure that the shareholders benefit from this increased earnings outlook we're seeing from this year. And so we've selected that as buybacks.

Got you. Very helpful. And I was struck by the commentary in the prepared remarks regarding having to airlift materials because of the block in the Suez, which begs the question, you broke down the impact of the winter storm and what have you, in terms of, I guess, $40 million of repairs and $35 million of higher raw costs, et cetera. But what about logistics? And, because obviously, you have to spend more on logistics, what sort of headwind did you face on logistics in the first quarter? And what's your expectation here in the second quarter?

Yes, I don't have an exact number on that, Frank. What I would say is, while this was a very unusual situation with Uri. I would also say we work very fluidly and flexibly to always supply our customers. So these are all things we pride in one form or another. We probably did more of them in a short period of time now. But I mean, they're just baked into our cost of supply. So I don't have a really good sense of is it $10 million $20 million, I don't know what we spent in addition, during Uri. But, definitely more than typical. But we always work very hard to supply our customers.

Yes. Frank, and I would just add, I think we were in a pretty tight situation, even going into Uri. And so this has made it even tighter. So our teams are really working on getting creative not just for the second quarter, but we think this could continue into the second-half. Logistics are going to be tight, probably for the balance of the year. So it's something we're just trying to stay ahead of.

Thank you so much.

Thank you. Our next question is coming from P.J. Juvekar from Citi. Your line is now live.

Yes. Hi, good morning.

Good morning.

Lori, you talked about the big green project of making methanol from recycled CO2 at Clear Lake. Where is the CO2 coming from? And what is the all-in cost of methanol from recycled CO2 versus let's say based on natural gas?

So the methanol -- sorry, the CO2 P.J. is coming from our facilities and our partner facilities in Clear Lake. So there are vent streams of operating facilities that are high CO2 and fairly pure. So that's what makes this very affordable for us at Clear Lake, is we can take those streams, further compress them, further purify them and add them directly to our synthesis gas at fairway, where it's converted into methanol. So what makes this really attractive for us is, we have spare synthesis capacity currently a fair way. We have a source of hydrogen available to us to ramp that unit up from the hydrogen grid industrial grid in that area. And we have the availability of high purity CO2 vent streams available to us. So with that, basically, the cost of producing methanol from recycled CO2 is really comparable to our normal cost of producing methanol from natural gas.

Okay. And then, there were a couple of questions on the Biden plan. And Exxon Mobil just recently announced a massive CCS project in Texas, or on the Gulf Coast on back of that Biden plan. Is there something you could do there to participate as either as a supplier of CO2 or as an off taker of CO2 there?

Yes. It's not something we've looked at yet, P.J. I mean, this project is several years down the road yet, quite frankly. And the real question is, what is the purity of the CO2 streams? How much you have to cost to clean it up? I mean, I like the idea of recycling CO2 more than just sticking it in the ground to be fair, but you have to look at the economics of it and how that would. But this is clearly something we're looking at, at our facilities or other facilities around the world, which is, are there other opportunities to do this, to use this technology in a cost-effective way.

Great. Thank you.

Thank you. Our next question is coming from Mike Sison with Wells Fargo. Your line is now live.

Hey, good morning. Really nice start to the year. Lori, when you think about the Acetyl Chain and I know it's a little bit early. But you guys talked about $900 million to $1 billion in adjusted EBIT for '23. I guess, investors should think about that for '22 to reset back to let's say $900 million or so. Is that the right way to look at it? And if so, what do you have in growth in EM and maybe cost savings other areas to potentially offset the year-over-year delta in '22 versus '21?

Yes. Look '21 to '22 is going to be a difficult comparison, assuming we kind of go to normalized earnings, because we have had that surge up in acetyl. We really consider our acetyl foundational levels still $800 now moving towards $900 over the next two years. So I think that's the right way to think about that, based on the capacity ads and other things that we've had. We expect, we'll continue to see continued productivity. I would assume that's in there at about, $0.25 EPS kind of year-on-year. So we'll continue to see that to offset. EM is going to continue to grow kind of at that 10% CAGR or higher every year, so that will also be in there to offset. And of course, I think the other thing timing is of course uncertain, but the other thing is that will be important for us over the next two years is, M&A and having M&A to also complement that organic growth strategy that we have for our businesses.

Got it. And then just on the second-half for EM 7% volume growth in first quarter, obviously 2Q is going to be normally strong volume growth. But what's sort of underpinning the outlook for the second-half for EM? Are you going to be at that kind of 10% - 11% double digit growth? And if you are what's going to drive that?

Yes. So we're really saying for EM is, second quarter we think will be flat to first quarter, because we are expecting some softening in auto based on the chip shortage and the resin shortage. But we are seeing recovery of medical, and not just the implants. We think implants will continue to need through the end of the year to really get back to full rate. But in other areas of medical, we are making really good progress. So for example, for our diabetes applications in medical, we're seeing really significant growth in those areas going forward. So just to give you an example. So our diabetes applications were up 50% from first quarter of last year to first quarter of this year. So that growth in other elements of medical, other elements of 5G and electronics and industrial applications, those will continue to grow and support that kind of 10% CAGR year-on-year growth going forward.

Great. Thank you.

Thank you. Our next question is coming from Matthew DeYoe from Bank of America. Your line is now live.

Thanks. The breathing guide on EM is pretty impressive. And seems to indicate the $550 million number you gave just like two weeks ago for the full-year is already pretty stale. So did something change in EM? Was that just conservatism? Is there something perhaps about the back-half that we're not necessarily picking up on? I'm just kind of going off normal seasonality and your 2Q guide and actually rates and stuff like that?

No. I think, look, we've seen continued good recovery. At the time of Investor Day, we did have concerns about automotive, although we haven't seen the impact of that time. I think we will see those concerns develop in Q2. Now we do see an end of that insight as well. So we do see Q3 strengthening and Q4. But, as we get further into the year, as we get better visibility, as we have visibility now into the June timeframe, we really see that continued growth. And despite the resurgence of COVID, which is kind of the other concern, we've called out, we really haven't seen that impacting our demand numbers in any part of the world, despite some very serious issues around the globe with COVID. So, I think we are getting more confident in that $550 million number and above going forward, and so very, very confident in that growth rate, I just called out.

Okay. And the $400 million EBIT number, it's a pretty big number. It kind of implies to me that you're pulling product out of VAM and selling it into acid. Is it true? I mean, I think in the past, you talked about pushing more and more downstream and we're 50% to 55% of your acid then move down to VAM. Did you move backwards on that? And have you been more opportunistic and just selling into acid and subsequently has that tightened VAM as a result?

Not really. I mean, the interesting thing about this surge in pricing for acetyl, which is different than 2018 is we've seen the price hold not just for acid, which is what happened in 2018. And in fact, in 2018, we did move a lot of stuff back to acid and sold it as acid to the market. What's different here is we are seeing that price pull through in VAM and emulsion as well, because of the really strong end markets for those products. So, I don't have the exact numbers in front of me. But I would say we've not made that shift back to acid in the same way, I think because we have seen pull through in the pricing into the downstream derivatives as well.

Okay.

Thank you. Our next question is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live.

Yes. Good morning. Lori, just to follow up on acetic acid. In your prepared remarks last night, it's evident that you plan to run your whole network very hard. The one exception to that was acetic at Clear Lake where you said you're at 80% due to limited availability of certain third-party raw materials. Can you expand on that? What is constrained right now upstream of acid? And timing wise, when would you expect to be able to run fill out at Clear Lake?

Yes. So look, a number of our third-party suppliers of raw materials had issues during the freeze, some of them have had to take turn around in order to properly repair their equipment. We were down around 70%, we're now up at 80% as they fully bring facilities back online. We really expect by the end of the second quarter to be fully out of this maybe even a little bit before and back to 100%.

Okay. And then I had a follow-up for Scott on free cash flow. You indicated in the prepared remarks, your goal for this year is $900 million or better. Having sorted through our model last night I was frankly coming up with a larger number. And so, I was wondering if you might refresh us a bit on CapEx and exactly how much working capital we are penciling in at this point? And also, whether or not you have any call it extraordinary items beyond the $100 million settlement with the European Commission?

Yes. Kevin, I think the simple answer on extraordinary items is nothing more than the $100 million that was already baked in. CapEx is we're planning on a number between $500 million and $550 million for the year. And a lot of that will just depend upon when expenses come in from a timing standpoint. We inherent in that number, something towards the higher end of that range. And then the balances are working capital build, as I stated earlier. Now, I think it was Duffy who called out, incremental $450 million or so of EBITDA versus our original guide at the beginning of the year. And that's in the right ballpark. And we do expect to collect that as cash is just likely a portion of that is going to slip into 2022, because of that working capital build.

I see. Thank you so much.

Thank you. Our next question is coming from Aleksey Yefremov from KeyBanc. Your line is now live.

Thank you. Good morning, everyone. You had quite healthy sequential improvements in engineered materials. Could you try to walk through this sequential bridge in earnings and understand the benefit of the baguettes, such as volume leverage, positive mix? And maybe is there an uplift in less differentiated polymers where supply demand may have been tighter?

Yes. So, let me try to take that. Aleksey, if I understand your question correctly, so if you look at kind of fourth quarter to first quarter, yes, we did have a significant uplift in earnings, I mean, almost doubled our earnings in engineered materials. So we had about a 6% increase in volume, which I would just say it's continued growth in demand really, across all sectors, really any we saw automotive returning to kind of pre-COVID levels joining the U.S. and Asia that had gotten there in fourth quarter. We thought industrial continue to go up. And we did see continued recovery in our medical, again, not just in plants, but other areas of medical now that because of the programs that we put in place are really starting to show up. So that was about a 6% increase. Then we had about a 6% increase in price. And I would say you know about half of that were proactive pricing measures that we took last year to get in front of the raw materials. And then about half of that was really product mix. So again, more medical more higher in premium palm application, really pushing the molecules that we did have into our more premium products. And then we also had a bit of a help from, -- we didn't have a palm turnaround, because we took that fourth quarter of last year and IPH, that was kind of another $30 million uplift. They are not having the palm turn around in this quarter. And then we had another about $10 million uplift from affiliate really kind of across the board in affiliate. So I mean, those are the big factors that really accounted for that pretty dramatic uplift that we saw in EM.

Thank you, Lori. And a quick follow-up. You mentioned disruptions in nylon and PBT supplies. How long do you think this could last?

Yes. I think, we do think they're going to continue through the second quarter. And we start to resolve themselves as we move into the third quarter.

Got it. Thank you.

Thank you. Our next question is coming from Arun Viswanathan from RBC Capital Markets. Your line is now live.

Great. Thanks for taking my question. I guess, I'll just start on the longer-term outlook for acetyl. You guys have announced the capacity additions. Couple years ago, there was some rationalization in VAM in Europe. How do you see supply and demand, I guess, in the Acetyl Chain over the next couple years? Do you expect further additions as well from the industry? Or would there be opportunities for consolidation? And I guess maybe if you could also address, you've noted some strength in end markets. Do you believe those are structural or just a little bit more near-term cyclical developments?

Yes. So, longer-term, I believe there have been structural improvement in terms of demand for Acetyl Chain products. Again, lot of it goes into construction and infrastructure, but paintings, coatings, packaging. I think the move towards people having everything shipped to their home in boxes is not going to change anytime soon. So, I think a lot of those sectors are seeing lasting increases in demand, even paints and coatings, I mean, why that maybe can be a bit more cyclical. Again, I think what's happening with infrastructure bills and desire to reduce energy usage, you see a lot more going into insulation and exterior coatings and things to further weatherproof existing buildings, as well as better materials and new buildings. So I think we are seeing a structural improvement in demand for acetyl products. I do expect we'll see some capacity come online, I mean, probably other than what we've announced not a lot in the near-term, again, because these things take a little while to build. But, if you go out, four years what I expect to see some additional capacity as yes, assuming that continues. That said, I also expect that, especially in China, new environmental regulations, other safety regulation may lead to some consolidation of capacity in China and certain parts of the world. So, I don't think this pricing level is going to continue forever. And I've talked about that already. But I do think we should continue to see fairly healthy margins going forward in acetyl based on those changes.

Okay. Thanks for that. And just as a follow up then, you provided kind of a $13 or $14 outlook for a couple years from now. But you've also mentioned that, you do have some plans for M&A this year. So maybe you can just elaborate on what you're seeing on the M&A front. And, if that does kind of now factor in a little bit more concretely into your longer-term outlook, and maybe push you up into the $15 level or so? How would you think about that?

Yes. I think we laid it out in Investor Day. What we laid out in the Investor Day did not assume any M&A. It just assumed everything was share repurchases, because that was the easiest way to model it in. But I mean, look, we're very active right now and looking at M&A as we have been. I think the M&A market is opening up. We see more parties interested in discussing M&A. We see more things being surfaced. So, look, I'd say we're hopeful, we're not making anything in yet in terms of M&A, but we're certainly hopeful that over the next 18 to 24-months, we will be able to do some form of meaningful M&A.

Thanks.

Thank you. Our next question is coming from Matthew Blair from Tudor Pickering Holt. Your line is now live.

Hey, Lori, congrats on the strong EM results in Q1. I was hoping you could just simply rank your top three end markets right now on EM, in terms of just overall demand strength?

Yes, so probably electronics would be the number one in terms of demand strength. I would say, medical is probably number two in terms of -- it's not our largest market, but in terms of the strength of the growth that we're seeing for medical and pharma is number two. And then auto, despite what we expect in second quarter is probably number three in terms of continued growth in the future.

Great. Thank you. And then, we're seeing this huge spot VAM in acetic acid crisis in China. But I just want to make sure I understand your comments from before. Are you saying that those high prices are a result of current outages? Or, hey, we have high prices now and be on the lookout for future outages that were deferred from Q1?

Look, I think the high prices we're seeing now is started with the high demand we saw coming out of the fourth quarter, and the tightness of the market is this aggravated by winter storm Uri. So, normally, for example, Europe is an import market. Normally, everybody ships from the U.S., which is the lowest cost location to Europe to meet the demand there for acetic acid but more importantly, VAM and emulsions. If you look at then hurricane Uri, with nothing coming out of the U.S., everything started coming out of China, and other parts of Asia. So that really kept, that's really what's been driving, I think the higher pricing in China and Asia is demand there, as well as exporting now into Europe, going forward. Because we know now all the plants are running again in the U.S., they're all coming back up to full capacity. Going forward, I think it will still be tight, but I think it could be tightened further, depending on the timing of now the China turnarounds that need to occur, as well as any unplanned outages that could happen anywhere around the globe.

Great. Thank you.

Thank you. Our next question is coming from Laurence Alexander from Jefferies. Your line is now live.

Good morning. So, in the EM, do you have a sense for how the rate of new projects and the duration of projects is affected in an inflationary or more volatile raw material environment?

Yes, we haven't seen the raw material environment really impacting the rate of new projects. I mean, in fact, we talked about this a little bit of Investor Day, but our project model continues to be extremely productive, especially with a focus on the growth program that we added 18-months or so ago. So if you look at just say, Q1 '20 versus Q1 '21, we've actually increased the number of projects by 13%. So the number of projects won by 13%. And if you look at the value of those projects, that's more than a 20% growth year-on-year in terms of the value of the projects won. So I would say, the project model is very healthy, it is giving excellent results. We are getting a lot of value. And it is the thing that is supporting this greater than 10% CAGR growth we're looking at over the next few years.

Thank you.

Kevin, let's make the next question our last one, please?

Certainly. Our final question today is coming from Jaideep Pandya from On Field Investment Research. Your line is now live.

Thank you. And thanks a lot for the comments yesterday was very helpful. First question is really on VAM and your ultra-high molecular weight going into battery separators. Can you just tell us Lori, how much of palm is in ICE versus EV? And then what sort of growth do you expect in your ultra-polyethylene as EV penetration sort of goes up and the wet end capacity in separators comes through? That's my first question. And the second question really is around acetic acid VAM. What is really the current sort of payback for any current player or a new player that wants to enter this market, considering all the things that you've described off the market which point to fundamentally better demand supply balance than it was maybe in the previous cycles? Thanks a lot.

Yes. Let me see if I can get that. So in terms of palm, I think if you look at palm, the difference between palm in an IC and then in an EV is not much difference at all. It's really other components that add. I mean, the difference between polymer content is very large between IC and EV. But for palm specifically, pretty flat between the two. Now, if you look at it, GUR, I mean, GUR we've seen really significant growth over the last few years, really supporting the expansions that we're putting in place. So if you look at, say, libs growth, lithium ion battery separator growth from '19 to '20, that was up 25%. And then if you look at between '20 and '21, it's going even be above 25% growth year-on-year. So huge demand for the ultra-high molecular weight material for lithium ion battery separators. We are able to expand into that capacity at very low capital costs. So, we're continuing to do so and that's why we announced the Bishop GUR plant, which will start up here next year. And then GUR plant to follow in Europe that will start up in 2024. And then in terms of acetic acid VAM, I mean, God, that's a really hard question. I mean, if you're expanding acetic acid in VAM which is what we have been doing, I would say you can get -- and you have good capital efficiency, you can get really good payout. Let's say kind of nominally three-year kind of payout. I think if you're talking about greenfield, our brand-new build, again, everybody's economics are different. But I'm going to say you're probably talking closer to a 10-year payout, even at pretty good, maybe seven years if you're really, really capital efficient. But, again, it's the infrastructure it takes to build acetic acid, you have to have hydrogen, you have to have methanol, you have to have CO. Unless you're in an industrial area, this gets really, really expensive. And just the transport, the stuff moves around in stainless tanks. I mean, it's the transport, it is an expensive proposition for a new player to get into acetic acid and VAM.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to, Brandon, for any further or closing comments.

Thanks, Kevin. We'd like to thank everyone for listening in today. As always, we're available after the call for any further questions you might have. Kevin, please go ahead and close up the call at this time.

Thank you. It does conclude today's teleconference or webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.