Celanese Corporation (CE) Earnings Call Transcript & Summary

Greetings, and welcome to the Celanese Corporation Second Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Brandon Ayache, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Darryl. Welcome, everyone, to the Celanese Corporation's Second Quarter 2021 Earnings Conference Call. My name is Brandon Ayache, Vice President 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 second 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 of these materials have also been submitted to the SEC. Because we published our prepared comments yesterday, we'll now go ahead and open the line for your questions. Darryl, go ahead and please open the line.

[Operator Instructions] Our first questions come from the line of Duffy Fischer with Barclays.

Congrats on a nice quarter and big rates. I guess 2 questions for me. First one, Lori, I think either on the Q4 call this year, the Q1 call, you talked about 1 meaningful slug of new acetic acid capacity hitting the market this year at a competitor. And that was going to be around midyear, as I recall. So one, I just want to see, have they been marketing that product? Is it producing? And what impact have you seen that have on the market? Or do you anticipate that having on the market?

Yes. Thanks, Duffy. Yes, so we do still expect that to hit. It's not started up yet. It hasn't hit the market yet. It's about 500,000 tons in China from Huayi. So we do expect it to hit -- I would say, it may contribute to moderation as we go forward in third quarter and into fourth quarter. But if you think about it, 500,000 tons, it's just really a little bit over a year's growth. So probably won't have a significant impact in the market we're in today.

Yes. And Duffy, I think it's important to remember, this is not a new player for the Chinese market. They have 2 plants already in the market. So it's somebody who's in the market who's adding more capacity.

Fair enough. And then just as a follow-up, I mean, if you look, obviously, your guidance for the year has gone up a lot from earlier this year. When you think about your decision-making, your ratios, net debt-to-EBITDA, dividend payout based on earnings, how do you think about that change from where you started to where you are today? What's the right level to think about as something you would kind of call structural to make capital decisions off of what's the right level of profitability to think about?

Yes. I think as we go forward, if we start thinking about 2022, we're really thinking about a foundational level of earnings for acetyl kind of in the $900 million to $1 billion range, growing into that range over the next 2 years. We're really thinking about Engineered Materials closer to $700 million, and then if you add Santoprene on top of that, you get to the kind of that $750 million to $800 million range. And then you think about acetic acid right around $60 million a quarter. And so I think that would be kind of the right level. I would consider those pretty foundational levels of earnings at this point in time.

Our next questions come from the line of Ghansham Panjabi with Baird.

Lori, in your prepared comments, you made some comments on China acetic acid pricing and how it progressed throughout the second quarter and into the third quarter. Is that decline a function of purely a supply normalization? Or is demand in the region starting to moderate? I guess I'm just trying to get us to micro pulse in China in context of the narrative that's -- it's in the market about a slowing in the region.

Yes. I think it's a little bit of both. So I think we are seeing some supply stability or -- of course, it varies day by day, but we -- our things in supply stability as we've come out of Uri and Western Hemisphere supplies have been more stabilized. Now we have been in a period of higher turnaround in the Western Hemisphere this last quarter. So we expect some of those plants to come back online. As some of you called out, there are some turnarounds happening in the third quarter in China, but I would say kind of within the normal level. So I think I'd say supply has certainly stabilized at first quarter. But I would also say demand, while it continues to be robust, we are seeing some pockets of lower demand potentially going forward, with COVID and the Delta variant and especially in Southeast Asia. So I think it's a little bit of both. I think what's interesting to note is if you look at the moderation that we've called out in China pricing, it's really a very slow moderation compared to what we saw, say, in 2018. And we think that is because it is demand-driven as much as supply-driven, whereas 18 months, you've got the supply back, it dropped very quickly. And if you look at recent prices, I mean, prices have -- in China have been really stable over the last, call it, week. And we think that's more indicative of the slow moderation we expect to see through the remainder of the year.

Okay. That's helpful. And then in terms of the inventory rebuild, I mean, what phase of the rebuild are we in that current? And then also your comments on 4Q earnings seasonality being minimal. Can you just expand on as well?

Yes. So inventory rebuild, I would say, we're in the pre-rebuild phase still. I mean everybody is talking about wanting to rebuild, but we are not seeing volumes being rebuilt in the acetyl supply chain or really in the EM supply chain as well. So I would say there is a desire to rebuild, but both businesses are still supply-constrained, not demand-constrained. And so I'd say we still have a long way to go on the rebuild. I would say, in fact, our anticipation is that it will last well into 2022. And then, sorry, your last question? There was -- yes, you had the second part of your question...

The 4Q earnings seasonality, sorry.

Yes, thank you. Yes. And that's exactly the reason we're saying we expect less seasonality in 4Q because we do expect, as prices continue to moderate slowly, we will see people starting to rebuild as supply is available. So if you think, for example, about the paints and coatings, right, that's a market where you typically see a good bit of seasonality in the fourth quarter. But we know our paints and coatings customers have no inventory. So we anticipate they will use the fourth quarter to rebuild their supplies in order to be ready for another spring painting season. So we really are expecting much less seasonality in acetyls. And then in EM, slightly, we usually see some drop-off in the Western Hemisphere in the fourth quarter and for all the reasons because we've been supply-constrained most of the year, we expect automotive as well as other end uses to be stronger than typical in the fourth quarter.

Our next questions come from the line of John Roberts with UBS.

Could you talk a little more about the fiberglass shortage ever since PPG sold its business to Nippon? We really don't hear much about fiberglass for plastic reinforcement.

Yes. We have seen a real shortage here in fiberglass. I'm not sure I can really articulate all the reasons between how it started. But what we do know is really all of the players right now in fiberglasses are short. And while we do see players stabilizing, we still expect it to be well into the fourth quarter or even into next year before we see a complete stabilization of the fiberglass market.

Okay. And then I don't know if you can answer the second one, but when CeramTec and Celanese were both part of [ Hoechst ], do you have any old timers that know whether the 2 businesses work closely together? I know Celanese plastics today is a lot different than it was back then.

I don't know the answer to that, but Scott may have more history than I do.

Yes. John, it was really operated very separately. As you well know, [ Hoechst ] was a very large company and had a lot of different components to it, and it was operated very separately.

John, I'll just say something more on that. As you know, we don't comment on any kind of specific opportunities, rumors or speculation. But I would just remind the group kind of not specific to CeramTec. We are always looking at a very broad range of opportunities. And over any given quarter, we explore and evaluate many, many opportunities, most of which never come to completion. So our focus remains on opportunities that fit well within our business models and really meet our disciplined return criteria and our requirements around synergies. So I'm not saying we would never do something like a CeramTec. The material doesn't need to be a thermoplastic, but it does need to fit the model, and it does need to meet our M&A criteria.

Our next questions come from the line of Bob Koort with Goldman Sachs.

I was wondering if we could talk on the -- in the EM business. The COVID impacts were sort of affecting the auto cycle and production rates and the health care markets. Can you give us a little update on what happened through the quarter and how you see the path for those particular end markets into the second half?

Sure. So for EM, I would characterize the end markets as all of the markets has recovered to pre-COVID levels at this point in time with the exception of medical implants. And as you said, auto which is really more due to shortages of those chips, microchips and also some shortages of resins in Q2. In fact, we've seen growth above 2019 levels in industrial and channel and electronics and some of the other sectors. So if we look at implants, which is kind of your question, implants have improved across second quarter. We expect them to continue to recover through the end of the year and really be back at normalized rates in 2022. I will say other areas of medical though, we have seen really good growth in this year, including like long dose drug delivery, diabetes applications, et cetera. So medical overall, I would say, has recovered. It's just specifically the implant business, which is our GUR business, which will be into 2022 before we see full normalization. I think auto, which is the other big end market, as we called out in our comments was down 8% in the quarter, but that's versus North America dropping builds of 12% and in Germany dropping builds of 15%, which is our 2 largest end markets. And so we think we've been helped there. Autos have prioritized premium vehicles. We've talked about that in the past, and we have the majority of our content in premium vehicles. But we're also seeing a real help from our programs that we put in place, specifically around electric vehicles. So if you think about it in the EU, 17% of all electric vehicle cells are now -- sorry, of all vehicle cells are now electric vehicles. And so that project pipeline where we've grown that -- those volumes have really helped us. We've also, as we called out and expanding our content in electric vehicles. So we talked about the 20 kilograms content that we have in Europe for 1 of our EVs, which is 4x our average ICE. Just to give you another idea, just GUR alone is 6 to 8 kilograms per electric vehicle. So a really big space that we have. We have really good polymers to go into those spaces. So as we go to the second half, we do expect growth again in Q3 as we see chip recovery, and we've had resin recovery. We probably won't be back to Q1 levels in Q3, but anticipate we'll be back to Q1 levels for auto by Q4. And we continue to see that few percent growth across other end uses as we move through the end of the year.

And kind of a follow-up, Lori, I think in the past, you talked about some parts of the EM had become a little bit more commoditized. Was there any over-earning, over-margined products during the second quarter? Or is there still margin upside on some of those more mainstream products there?

No. I think there's still more upside on margin of our products. I mean we had a few. If you look at our margin percent this quarter, we had a few impacts there that brought our margin down slightly from last quarter. Some of it was increased spend in the plants as we needed to add more people to deal with the increased demand. We also had higher energy costs, especially in Europe. And then logistics and transportation, as I'm sure you're hearing from other, was certainly a big headwind this past quarter and will continue to be a headwind probably through the end of the year and even into early next year. So I think as we see labor markets stabilize, as we see logistics and transportation stabilize, I think we would expect to get back to previous levels of margin going forward. I would also just say, Bob, the real difference here from what we've seen in the past is our constraint in Q2 and continuing in Q3 is not demand-driven. It's really supply-constrained. It's our ability to make resin, get the additives, especially glass fiber as we called out, which has continued to deteriorate as we move through second quarter and into third quarter. It's really supply-constrained. So there is also more volume upside as we go forward and are able to resolve those supply constraints.

Yes, Bob, and I just want to clarify. And I think what we've said in the past, these are really -- those what you alluded to are standard applications. They have more competition in them, but these are still engineered solutions. And we obviously work on kind of the more value and use premium side for our new project pipeline, but that standard part of the portfolio is always going to be a real critical element and really building blocks to get in the door in a lot of places.

Our next questions come from the line of Jeff Zekauskas with JPMorgan.

Given that there's been so much supply volatility and volatility in demand, has your -- have your cost-cutting programs executed along the lines that you've expected? Or have many of the cost savings been deferred to next year? I understand prices are up a lot and you're making a lot of money. But in terms of the way that you've been trying to make your operations more efficient, are things delayed?

Yes. No, it's a great question. So we had outlined before, we expected to get -- we are targeting $100 million to $150 million gross productivity. We are on track to deliver $150 million of gross productivity this year. So those are cost savings. I would say other years, we might have outperformed that. I mean, certainly, we did last year. This year, I'd say we're going to hit that $150 million. But what we're also seeing is a lot of opportunity and revenue optimization. So plant optimization, small debottleneck projects. So we are focusing more on how do we get more molecules out because we are supply-constrained, but we will still deliver at that kind of historical level of cost productivity as well.

Yes, Jeff, we typically break productivity into 4 buckets. Rev gen, I would say, manufacturing cost reduction, procurement cost reduction. And then I would say more kind of S&A type reduction. I mean the S&A bucket is very small this year. The procurement bucket is very small this year. Where we've shifted it in 2021 is more on manufacturing costs in rev gen as Lori talked about.

And then my follow-up. When you talked about your acquisition criteria, are your acquisition -- and you talked about your acquisition criteria being return-based. Does that mean that the direction of your acquisitions really may go in the direction of diversification over time? And that is, should we view Celanese as really not being bound by wanting to have more polymers, but really trying to find other businesses if they're available, where the industry structures are good, and you think you -- that the returns are high?

Yes. Look, I don't think we're going to go out and acquire something completely out of our lane. One of our criteria is we want to be able to deliver synergies. And we want to -- and to do that, it means we have to either be familiar with the end market, be able to use our model. So what I'm saying is it doesn't have to be a thermoplastic. There are other areas we could think of, but I would still want them to have in markets that we're familiar with and where we think our sales force and commercial teams and manufacturing teams could add value to, or we could apply them to our engineered materials model or our acetyl model. So they may be new materials to us, but they will have some connection to our existing business.

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

Scott, I just wanted to ask you on the free cash flow. I appreciate the comments about the working capital build in the quarter. But as we look out of this year and into next year, and you gave some sort of preliminary EPS view on '22, how should we be thinking about working capital and free cash flow generation as conditions normalize? And I guess I'd just mean it in terms of where is it going to be, number one? And then number two, given everything that's going on with raw materials and availability and so forth, is there any consideration being given to hold more raw materials so that you can be sort of better positioned or opportunistic when we continue to see supply disruptions?

Yes. Let me take the last part of that first, Vincent. I think I would say we don't take a one size fits all. I mean, I think it really depends upon the business and the material and where we're at and how we see things going forward and particularly how our business is performing. And certainly, reliability of supply in certain materials is very important for us right now. And so we may choose to hold a little bit more raw material, if possible, if we can get it in certain areas of tightness. We are not going to be bound by that working capital number because our working capital efficiency has historically been very strong, and we can bring that down fairly quickly, if necessary, in the future. I think in terms of how we see that working its way, our greater than $1.2 billion for the year assumes we get some of that working capital back towards the end of the year, but certainly not all of it and certainly not back to how we started the year. And so a lot will depend upon what happens with raw materials and as well as our pricing. I mean one of the important characteristics here is accounts receivable. And with what we've seen in pricing in Asia, in acetyls which tends to have slightly longer payment terms, we're carrying a little more accounts receivable today than what we have historically. So as that normalizes, we'll get some of that back. And so there will be a catch-up likely into next year.

Okay. And just as a follow-up, there were also comments in the release about sort of the Chinese price will be coming down, but there'll still be strength in Europe and India because I think there was a reference that there's typically a lag. Just wanted to better understand sort of what causes that dynamic where it doesn't get harmed out pretty quickly that you could have serious price discrepancies between those 3 areas.

Yes. Look, if you think about it, I mean there's not much acetic acid production in India. So basically, that material comes out of China or Singapore or somewhere else in the world. So you have a shipping delay, but price is done at the [ globe ]. Same for Europe. Most of the material going into Europe comes either from the U.S. or from Asia. And so you have that shipping delay as well. It's really just as simple as that.

Our next question is come from the line of John McNulty with BMO Capital Markets.

Lori, in the prepared remarks, you had indicated the 2023 goals were likely going to come in around -- or in 2022. Can you just clarify whether that is inclusive or exclusive of Santoprene and if it's really just a reflection of kind of the current markets and your comfort in the demand fundamentals or if it does include the M&A?

Yes. Look, we'll give better guidance in October as we have more time to work through this. I would say the $13 to $14 earnings per share that we had for '23 were now pulling into '22. I would look at it's at -- it's that range with or without Santoprene. Now I mean Santoprene is definitely value accretive to us, but we did model in all of our cash being used for stock purchases. So while there's some uplift, I would say I'd look at Santoprene and taking this closer to the high end of that range; as without Santoprene, we would have been at the lower end of that range.

Got it. Fair enough. And then I guess just as a follow-up, the guide is actually a pretty tight range for the rest of the year. And I guess, just given the volatility that you're seeing in all the markets, I guess I'm curious how you get comfortable with such a tight range on such a big base. Is it -- have you locked in, in terms of some of the commodity prices? Have some customers reached out to try to maybe lock in things for the year? Or I guess, how do you get as much comfort as you have in such a volatile market?

Yes. Look, if you look at Q3 guidance, I would say from knowing what our books are, we're halfway through the quarter already from our standpoint. So we can get pretty comfortable with Q3. And then I think for the full year, it's a little bit different that again, we're really supply-constrained. It's not a demand constraint. So even with some volatility in the market, we still can only sell the amount of material we have, and we know how much material we have. So I mean, yes, there could be big swings in acetyls and that could change a bit. But we just gave -- it was a narrow range admittedly, but we just kind of said, here is what our projection is, given that we are fairly close to the end of the year.

Yes. And John, I think we tried to outline in the prepared remarks some of the assumptions we've made to get to that range. So as those change a little bit, then we'll update that in October.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

Lori, a question around regional demand trends. Obviously, it seems the pace of vaccination is very different by region, particularly in Asia, still some lockdowns continuing over there. And then on top of that, you sort of overlay some of these supply chain constraints that you guys were talking about, others have talked about as well. So, a, what are you guys seeing in terms of demand growth disparities between regions? And then on a go-forward basis, what does this tell you about demand growth? I mean are we going to be in a period of above normal demand growth as more and more parts of the world sort of start normalizing and sort of lockdowns start waning?

Yes. I would say at this point in time, I mean, certainly, as we started coming out of COVID, we saw it kind of move around the globe where Asia was strong earlier and then the Americas and Europe was slowest to recover. I would say at this point, demand is pretty normalized around the globe in terms of being pretty consistent across regions. Interesting enough, I mean, while we're worried about the Delta variant, we haven't seen it have much impact yet, although that is a concern. As I said, we see some signs that there may be some impact on Southeast Asia. But I would say, in general, the globe is pretty consistent right now in terms of recovery.

Understood. And now moving on to the tow business. Obviously, very strong volume growth sequentially in Q2. And I guess, in sort of the written remarks, you guys talked about some of the Q1 demand sort of going, carrying forward into Q2. How are you guys thinking about demand growth or volume growth in that business in the back half of the year?

Yes. I mean, really, the volume growth in Q2 was, in fact, what you just called out, which is we work with customers in Q1 because of the freeze and our shortage of acetic acid. So we worked with customers in Q1 and to push demand into Q2. And so if you look back at Q1, we had reduced volumes in Q1. Those volumes showed up in Q2. I think we actually see volumes being stable through the rest of the year kind of at the average. I'd expect the second half volumes to look kind of like the first half volumes. Earnings will be less because acetic acid pricing remains high relative to historical. We have higher energy costs, especially in Europe and just the timing of our dividends from our Chinese JV, which typically are heavily weighted to the first half.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Lori, just on the M&A pipeline, excluding CeramTec, how is that pipeline today?

I'd say our M&A pipeline remains very robust. We continue to look at deals of all sizes. I mean you saw that with Santoprene, which is a big bolt-on, Grupa Azoty, which was a small bolt-on and then even some divestitures we did. So I think we remain very active looking at our portfolio, where we want to add, where we need to take away. I would say we're very actively looking at deals of all sizes. We certainly have the financial capacity as well as the management capacity to continue to look at additional M&A through the rest of this year and into next year.

And Lori, just in the prepared comments, you've laid out a number of projects, many of which come online over the next couple of years. How is that next tranche of projects do you mind at '24 through '25, '26 projects late looking in? Is it different than the current one we were in right now?

Yes. So really, the only thing we have kind of on the books at this point in time for that period is GUR expansion in EU, which we expect to come online in 2024. I would say, given that we're just in 2021, we're just now starting to look at what will our demands and needs to be in that period of time.

Our next questions come from the line of Michael Sison with Wells Fargo.

This is Richard actually on for Mike. So my first question is on Engineered Materials. It looks like you were able to get a 7% increase in price in the second quarter. You also talked about sourcing challenges and raw material cost inflation. How much of the price increase was to offset the cost, higher cost? And -- or how much was that just part of adding value to your customers?

Yes. I would say, look, our teams worked really aggressively through starting in fourth quarter of last year actually to really push price knowing that we saw this increase in raw material pricing coming. So I would say that was the primary reason for the price increase. But we did raise price more than we saw our raw materials increasing. And I think that's question of mix. I mean, look, we are in a very tight supply-constrained situation. So we have been prioritizing our higher-margin products and our higher market -- higher-margin regions to really maximize the return that we get for the molecules that we have available to sell to the market.

Okay. And as a follow-up, on the acetyl chain, you gave some color in terms of pricing coming down in the second half. What's your view on spreads? Obviously, your low cost, but I guess your agent competitors could get squeezed if prices continue to fall. So how do you think about that heading into the end of this year?

Yes. I mean, certainly, if you look at China, for example, our technology is certainly advantaged versus the [ carbon ] filter technology or some of the others. As prices fall, they will get squeezed in terms of margins. Clearly, our capacity on the Gulf Coast, which uses natural gas is the most cost-effective in the world. And so we will still maintain that advantage on margins versus competitors as prices continue to moderate.

Our next questions come from the line of P.J. Juvekar with Citi.

Can you talk about your elastomers acquisition from Exxon? What are the industries you are targeting? Why do you think, in your mind, Exxon is getting out? And is there any supply coming online? What's the supply demand there? Is there any new supply coming online in China or elsewhere?

Yes. Look, we're really excited about this acquisition. I mean you'll have to ask Exxon why they're getting out. I will give you my opinion, which is look, they've only had this business since 1980s. It was a JV. They acquired it fully in, I think, about -- maybe 2010, sometime in that first decade. Look, this is not one of their core businesses. Exxon is an oil and gas, commodity chemical player. This is a highly specialized business. And I'm sure, while they've enjoyed the margins and returns from it, it's not -- it doesn't really fit their model of what they're trying to do. And having come out of an Exxon specialty business, they struggle to run them in a way that can be highly competitive with others. So my guess is they realized it was more valuable to us than it was to them. If you look at end markets, it is largely into auto. Think things that need to be recyclable or long life or soft touch or lightweighting. But there are also applications for it into medical applications, into construction, think seals around windows and skyscrapers. And so as we look at it, we think it's a really good fit for us to cross-sell with our automotive side. We think there are some really exciting new applications in medical going forward that given our knowledge now at the medical and pharma industry, we can exploit. And so we think there's a lot of opportunities there to really apply these materials to businesses we already know, already understand and already know how to access the market. Again, our willingness to do -- deal with complexity is just different than Exxon. We deal with small orders every day. That's not something Exxon wants to do. They -- so I think we see a lot of value uplift opportunity here in what we consider very profitable end markets as we go forward. In terms of new capacity, we are not aware of any new capacity coming on in this area. It is a highly specialized material. And we don't see any -- now, we don't anticipate any for the future. This, in fact, Exxon had grown the capacity of this business in just the last couple of years, I think, in the Newport facility.

Yes. P.J, just on that last point, I think it's important to remember, I mean, this really is an engineered solution. And supply-demand utilization, a lot less important here, in these businesses, much like our other Engineered Materials businesses because of the value and use element and the uniqueness and differentiation of what this material and this brand brings to customers. And that was really one of the real attractive elements to this to be really complementary to our Engineered Materials business.

Great. And Lori, overall question on the tightness in logistics and labor markets that you talked about. You think they'll last into 2022. Is that a U.S. phenomenon? Or is that happening in Europe as well? And why do you think this is taking a long time to get ironed out? Is it the logistics part of the issue? Or is it the labor market? Can you just talk a little bit more about that?

Yes, I think they're are really 2 separate things. I mean I would say the logistics and transportation issues are global. I mean certainly global. We see a lot of problems for people trying to get things out of China, as you know, but I would say really, whatever what you're going, it's pretty hard right now. Whether it's by ship or on ground or rail, there is just a lot of volume being moved around the world. Not sure I could explain all the reasons why, but certainly, people are moving more things around. I mean, just even the amount of things you buy on Amazon these days. It's -- we just see a real constraint there. And that's really what I was referring to. I think it's well into next year, I think possibly even after Chinese New Year before we really start to see stabilization in those markets. The labor phenomenon I discussed has really been more of an issue in the U.S. than in other parts of the world. We haven't had as many issues in Asia, for example, nor we had the issues in China. But in the U.S., I think we just -- we see people we're hiring to expand and run our plants, are also being hired by Amazon to run their warehouses, for example. And so it's just a very competitive labor market, and we've had to make adjustments as we've wanted to add shifts and do things that would let us expand rather quickly to our labor rates. But I think in time, this will stabilize as we see more people going back to work in the U.S., I think this will also stabilize. But I do think probably on this will take into next year as well.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.

Lori, I thought your guidance in Engineered Materials was quite constructive. But I wanted to peel the onion a little bit more with regard to the glass fiber shortage. Can you talk about the upside opportunities and the downside risks related to that supply shortage, for example, on the volume side, how much might you be constrained? What are you baking into guidance there? And then on the price side, I guess my question would be, is there opportunity to capitalize by raising price in the engineered products that might require glass fiber. I assume that's certain polyesters and maybe Celstran and some nylon grades. Maybe you could just elaborate on what's going on there.

Yes. Maybe to be a little bit more clear on the characterization. I mean if we look at second quarter, we would estimate, we probably lost as much as $5 million revenue due to problems around glass fiber as well as a little bit of logistics transportation issues. If we looked at third quarter, that number is probably going to double. But we do expect it to resolve and we get some of those volumes back starting in the fourth quarter and going into 2022. Look, we are seeing glass fiber makers coming back. We are seeing the volumes go up. Glass fiber that goes into polymer is a very small percentage of the glass fiber market, but it's probably one of the more profitable segments for them. So we do expect to start seeing more glass fiber coming back towards us as we move into fourth quarter. Look, I think long term, as this goes on, it has been an opportunity for us to convert people to other polymers. Our polymers that also have glass fibers that we prioritized because they're higher-margin polymers, so that people can get their product. So I think there is some upside here, and we've been able to convert some of it to higher margin products. But I think long term, it is about 1/3 of our portfolio that uses glass fiber. So it is a pretty important raw material for us going forward. And we've taken steps commercially to secure supply of glass fiber in future years. So hopefully, we don't run into this problem again.

That's really helpful. And then secondly, if I may, do you have plant maintenance turnarounds in the third quarter or the fourth quarter that we should be keeping in mind for modeling purposes?

No. I mean we always have small turnarounds and maintenance items. But the total for this year is only $30 million for the entirety of the year and it's split pretty evenly between the first half and the second half. So it's not anything of note as that you're going to notice in terms of our volumes or our costs.

Our next questions come from the line of Alex Yefremov with KeyBanc.

You mentioned in your prepared remarks 8% sequential impact on automotive volumes. Did that number include the shortages of nylon, glass fiber, PBT, et cetera? Or were those raw material shortages, some additional impact on top of that? And if so, how large was that?

Yes. No, that was inclusive of everything. That was both demand from auto as well as constraints we had due to resin and additive supplies.

So if we're trying to normalize sort of your volumes for current state of demand, it's that 8% and maybe automotive is 1/3 of your business. So something like 2.5% should be added to top line when everything is running well. Is that the right way to think about things?

Yes, more -- yes, roughly. That's about right. I mean if you think about it, for this kind of demand, you just need to see a few percent increase in everything else in order to stay stable. So that's about right.

And a quick question EM margins. Should we look at second quarter margins as sort of the benchmark for the rest of the year? Or will these margins be rising?

Yes. I think based on what I had just said earlier about the impact we saw from supply shortages and logistics and things, I would expect Q3 to look pretty much like Q2 probably from a margin standpoint because we do see, especially the glass fiber issue continuing well through Q3, I would expect Q4 margins to look more like Q1 again.

Our next questions come from the line of Matthew DeYoe with Bank of America.

In the past, I feel like you've been calling for a more normal EBIT in acetyl chain next year, which maybe implied something like the $700 million to $800 million number. But I think if I heard correctly in an answer to, I think, Duffy's question earlier, you seem to support something closer to $900 million to $1 billion. Do I have that wrong? Or is the more optimistic view just a function of the better demand backdrop that you've been kind of talking about?

No. Look, I think as we work through this year, and we've seen the impact of various debottlenecks and productivity products and continuing to optimize our model for acetyls, the addition of U.S. tax and other things. We really feel like we've lifted the foundational level of earnings from kind of that $700 million to $800 million to now $800 million to $900 million . And we're expecting some goodness to continue in acetyl margins into 2022 that put us at that kind of $900 million for acetyls.

Understood. And Similarly, I guess, if I remember correctly, I think the comment used to be that breaking up the company would result in something like $50 million of dissynergies, but that you had constantly been trying to work that number down. Is it still around that number? Do I have that number wrong? Or is it higher now or lower? Or is there any...

I think $50 million is still a good number to use. I mean I don't -- I honestly don't see it really going a lot lower. I think we used to think it was even higher. I think $50 million is probably the right range to use for the level of dissynergies we would expect if we split the company.

Our next questions come from the line of Frank Mitsch with Fermium Research.

Congrats on the quarter. Lori, in the release, it mentioned that you were able to bring back the Clear Lake facility during the quarter. I'm wondering how much you may have lost by not having it through the entire quarter.

Yes. I don't have an exact number. I think if you look at the residual impacts of winter storm Uri, in quarter 2, we think it was probably about a $30 million impact and that's from higher raws, energy, inventories. I mean primarily all of that was in AC.

Got you. And can you comment just in general on the overall industry operating rates in the acetyls chain that you're seeing right now?

Yes. I mean, so if we look at Q2, I would say, we think in -- globally, utilization was up just over 90%, China just under 90%, but we also know that there was much higher intermittently and probably close to 100% at many times during the quarter. VAM globally also at 100% basically for the quarter. With this capacity coming on in China in August, as anticipated, we actually think utilization will remain at similar levels, again, because there is pent-up demand in the chain. There is a need to rebuild inventory. But I would say right now, we still think we're somewhere around that 90% range globally and probably should continue to be so during third quarter.

Our next questions come from the line of Matthew Blair with Tudor Pickering, Holt.

Congrats on the results. The previous comments listed out 9 discrete organic growth projects. What is the big picture EBITDA number for all these projects in total?

Yes. Matthew, I don't think we've called that out specifically for each project. We inherently included that in our Investor Day guide for 2023, and then we indicated there was additional uplift into '24 and '25. We will, as we update that outlook going forward, we'll provide a little more clarity on kind of how that materializes in those out years. But we haven't specifically given a number for all the projects.

Our next questions come from the line of Laurence Alexander with Jefferies.

Just 2 quick ones. Given the supply chain lags and the stronger demand and low inventory levels, how resilient do you think the value chain -- the acetyl value chain will be if there is a direct hit in the Gulf Coast from hurricane this season compared to like, the normal hurricane impacts? And secondly, can you give us a sense for how the competitive intensity and process R&D in acetyls is evolving? Are the Chinese sort of doing the work? Are you seeing a competitive gap closing? Or do you see a widening now that BP shifted the business over to INEOS?

Yes. On your first one, on hurricanes, I mean, who can say, right? I mean where it hits, what it takes down in addition to acetic acid plants, does it take down consumers, it's hard to say. I would say, in a tight market, any disruption gets amplified with even higher prices and more panic buying and other things. So in a very tight market, a hurricane right now, even the threat of one probably would cause some upward movement in the market. But it's really hard to predict what the overall impact would be. I think it's a competitive gap. I think, look, we continue to invest in R&D. I know our competitors do as well. I would say we think we continue to have advantaged technologies, in acetic acid, in VAM and emulsions. We don't really see that gap closing. We think everybody continues to move up, but we don't really see that gap closing at this point in time.

Darryl, let's make the next question our last one, please.

Our final questions come from the line of Arun Viswanathan with RBC Capital Markets.

Just wanted to follow up a little bit more on that long-term outlook on the AC chain then. So do you think we've kind of entered a structurally higher area of earnings power? I know that you guys have changed your plans as far as your footprint optimization. But is there a scenario where you'd see continued global capacity additions? And would you participate in that? It does appear that there are pockets of production shortages globally, as you mentioned, India and elsewhere. So I guess maybe if you could provide a little bit longer-term view on your capacity and maybe the industry's capacity as well.

Yes. So it's kind of a broad question, but let me try to break it down. So I discussed some of the things we did that we think improved our foundational earnings in terms of productivity and capacity debottlenecks, et cetera, and strengthening of our chain and strengthening of our model. I think it's also fair to say that we believe that the acetyl industry dynamics has improved over the long term. So if you think about it just growing at kind of GDP, between '18 and '21, we saw nearly 1 million tons in demand growth for the industry. And during that time, we didn't add any new capacity. So it is a more tightly constrained market than it was, say, back in '18, the last time we had a price run up. We have a little bit of capacity coming on stream here in China that we talked about. And of course, we have a lot of capacity, our own capacity coming on, 1.3 million tons coming on in 2023. So those are the big capacity adds that are out there. But even if you add those together, it's kind of 3 or 4 years of growth in a very tight market. And again, we don't intend to run our capacity unless it makes sense to do so. So I think the market dynamics have definitely improved over the last few years and continue to improve with just normal GDP growth. That could motivate people to get into the market. But I would say it's a very expensive market to get into. I mean you know our 1.3 million tons of capacity that we're adding at Clear Lake, we're spending $350 million to do so. But if we look at greenfield build like they're doing in china, our own estimate of building that plant in China, because they don't have the infrastructure or everything else, is well in excess of $2 billion. That's a big hump for people to get over. You have to have availability of syngas. You have to have access to hydrogen. You have to have a good energy source. I mean it's a big hurdle for people to get over. It's a little better in the Gulf Coast of the U.S., but again, we already have a lot of players in the Gulf Coast. So we don't see any new capacity coming on immediately. Even if someone were to start today, they're still 4 or 5 years out from adding new capacity. So we see for the foreseeable future, this remaining a pretty robust type market.

There are no further questions at this time. I would like to turn the call back over to Brandon Ayache for any closing remarks.

Thank you. We want to thank everybody for listening in today. As always, we're available after the call for any further questions you might have. Darryl, let's go ahead and please close out the call.

Thank you for your participation today. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.