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. 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. We saw the weather coming; it was predicted. We anticipated we would need to shut down. 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 really source that material even before we went into the freeze. 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 in the market.

Thank you. 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 Investor Day on 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. 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 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, etc. 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 to $750. Really in the last many weeks, we've seen prices greatly increase 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 materials.

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, we 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 — 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 were 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. Some of those 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. 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 can also be a factor as we go forward. But we won't know what those are. 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 moved 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 returning to near-normal levels. And again, that is going to depend on what outages people take and whether there are any unplanned outages in that 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. 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 global intangible low-taxed income provision would impact you or just — maybe any general thoughts on what could happen to your tax rate?

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. I think there are ways in which, with our global network, 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 hundred 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. We really have not seen much impact from the chip shortage yet, 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 will start to affect us in the second quarter. There's also some resin shortages in the industry that are impacting the automakers. You might see something 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 these issues to be resolved through the quarter and for demand to be 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 incremental number, how would that flow through the cash flow statement then?

Yes. Duffy, I think the easiest way to look at it is originally we said we'd 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 that really is tied to that incremental cash flow that we have this year versus what we had originally planned on. You highlighted where the delta is — it's really on the working capital build. 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 that we will have a working capital build. 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 a 1,300,000 ton facility in Clear Lake — another world-scale capacity facility. 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 expect others may announce, though whether they ultimately get built is 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. You can't just go put an acetic acid plant anywhere. You need to have access to methanol or some form of syngas. You need access to CO and 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 an industrial area and have access to utilities and feedstocks. Frankly, that's what keeps acetic acid plants from being built everywhere in the world. So, there may be announcements; I don't know what others will do. But it's also three to four years 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 chains seem to be very low based on commentary that's been out. So even as supplies sort of get rebased higher post the first half disruption, do you think it will be at a higher level for longer relative to the duration and spike that you saw in 2018?

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. I think it's really based on a couple things. One is we've 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 we've just gotten 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 little bit over GDP every year. We haven't seen major capacity additions, so it's a better supply-demand dynamic. If you look at 2018, that was very much supply-driven. Inventory and demand were at normal levels. But starting at the end of '17, you saw a whole series of shutdowns in the industry, especially in the Western Hemisphere, which really drove a supply shortage and drove price up. Remember, that was when methanol was around $450 or so and crude was around $80. 2021 is fundamentally different: we went into this with both supply and demand tight. We've seen robust demand since at least Q4 2020 as the world moved into recovery. And again, not just in acetic acid but also in VAM and emulsion, which is different than 2018. Our inventories were very low going into this year globally. So it's already a really tight supply-demand market and then we had winter storm Uri, which knocked out three of the four large producers in the U.S. for a considerable period of time — a minimum of about four weeks as everything had to get back up and running. We've done that, but we still haven't seen methanol prices go way up. Methanol is still around $350 and crude is $60, so we have a larger margin. That's partially offset by higher precious metal prices, so there's some offset. But fundamentally, this is a deeper disconnect between supply and demand than we had in '18 and that's why we're seeing record pricing in China that reflects that. I do think there's the possibility this is going to be longer and bigger for a period than 2018 was. Again, it will depend on how fast recovery happens around the world, demand levels stay up, what happens with methanol pricing and precious metal pricing. But I do think the probability is higher, and what we baked into our revised outlook is that this continues through Q2 with somewhat elevated pricing through Q3 as well.

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 more on contract? Or is this an inflationary factor that you're feeling?

Jeff, we're certainly feeling the inflationary pressure. The good news is we anticipated this coming back in Q4 of last year already and started moving prices in engineered materials to reflect this. 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, 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?

Jeff, 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. That is one of the factors for the tax rate remaining low. After U.S. tax reform, we did gain some advantages from the U.S. side of our operations, but we really are a global operation — about a third of our sales in the U.S., a third in Europe and a third in Asia. So that balance has helped keep the rate low. 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 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? How should we think about that?

We really haven't seen any demand disruption, John. There is always the possibility vinyl acetate could switch to acetate, but that's not a cheap switch nor one people will do in the short term. At this point, we've really been focusing on keeping our contract customers supplied with what they absolutely need. 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 would 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 partner with you more meaningfully, maybe willing to pay higher prices for stability or surety of supply? How should we think about that playing out over the next few years in terms of stabilizing your platform even more?

We certainly have seen across all of our businesses that customers are more interested in contract arrangements versus spot arrangements, because we've prioritized our contract customers as we've had shortages in acetyl and in EM. Those customers we have contracts with, we've worked closely to make sure we could get them, not necessarily all the volume they wanted, but the volume they absolutely needed to keep running so they wouldn't have plant shutdowns. For non-contract customers, we haven't been able to do that. So certainly we see that driving more people into wanting contract-type arrangements than 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 revisit the back-half guidance, specifically on the Acetyl Chain side. Obviously conscious of the fact that you guys have visibility through June. But just in hearing some of your remarks — turnarounds being pushed into Q3, the impact of Uri, inventories being lean even pre-winter storm — is there a fairly high probability that this moderation in supply-demand fundamentals and pricing you're looking for within Acetyl Chain could actually surprise to the upside? Keeping all these moving parts in mind.

There's always that possibility. We put out guidance based on our assumptions about what we think will happen, especially through the third quarter. Obviously, there's new capacity coming on in the third quarter in China, so we've baked that into acetyl — that should help stabilize supply-demand there. But if we had extended turnarounds or unplanned outages, that could extend the period of higher pricing for longer and could result in upside. It's always possible. This is our best outlook. Remember, we still expect seasonality in the fourth quarter; seasonality is typical. We even saw it last year in acetyl as the construction market generally ramps down a bit due to weather and other constraints in the fourth quarter. So you should still bake some seasonality into the fourth quarter and expect a return to more typical levels.

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

Unfortunately, there's not enough detail about the plan yet to know what that really means in terms of how it's measured and whether you can get credit for materials you make that help reduce others' greenhouse gas emissions. On the one hand, it's a real opportunity for us because many of the products we make will be needed by others to meet that commitment. In construction, for example, acetyl goes into weatherproofing and insulation. It could be a huge opportunity. As far as reducing our greenhouse gas emissions from our own facilities, that has to do with heat recovery, lower furnace firing, use of alternative energy like our solar contract at Clear Lake, and recovery of CO2 vent streams. We're doing CO2 recovery at Clear Lake, and maybe there are options to recycle CO2 back into our operation. So I don't know yet whether it's possible to reduce our own footprint by that amount; we need to see the details. But in general, it's more of an opportunity for us than a threat at this point.

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 depending on how the results come in?

I think we were trying to indicate we'll have done about $500 million of buybacks in the first half. As we see our financial outlook improving for the full year, we showed additional cash available as buybacks to make sure the shareholders benefit from the additional earnings this year. If we have higher earnings, I would anticipate we'll put those into buybacks. But it doesn't change our desire to do significant M&A this year and next. Remember, we still have a billion dollars on the balance sheet even after these buybacks to put toward meaningful M&A. So it was more an indication we want to make sure shareholders benefit from the increased earnings outlook this year, and we've selected buybacks to return that cash.

Got you. Very helpful. I was struck by the commentary in the prepared remarks regarding having to airlift materials because of the blockage in the Suez, which begs the question: you broke down the impact of the winter storm in terms of $40 million of repairs and $35 million of higher raw costs, etc. But what about logistics? 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?

I don't have an exact number on that, Frank. While this was an unusual situation with Uri, we work very fluidly and flexibly to always supply our customers. These are things we pride ourselves on. We probably did more of them in a short period of time than usual, but these costs are baked into our cost of supply. I don't have a precise sense of whether it's $10 million or $20 million. Definitely more than typical, but we always work very hard to supply our customers.

Frank, I would add we were in a pretty tight situation even going into Uri, and this has made it even tighter. 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 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.

Hi, 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 from natural gas?

The CO2 is coming from our facilities and partner facilities in Clear Lake. There are vent streams from operating facilities that are high CO2 and fairly pure. That makes it affordable for us at Clear Lake: we can take those streams, further compress and purify them and add them directly to our synthesis gas where it's converted into methanol. What makes this attractive is we have spare synthesis capacity at Fairway, we have a source of hydrogen available from the industrial hydrogen grid in that area, and we have availability of high-purity CO2 vent streams. So the cost of producing methanol from recycled CO2 is really comparable to our normal cost of producing methanol from natural gas.

Okay. And then Exxon Mobil just announced a massive CCS project in Texas on the Gulf Coast. Is there something you could do there to participate as either a supplier of CO2 or as an off-taker of CO2?

We haven't looked at that in detail yet. That project is several years down the road. The real question is the purity of CO2 streams and the cost to clean them up. I like recycling CO2 more than just sequestering it, but you must look at the economics. It's something we're considering at our facilities and elsewhere in the world — are there opportunities to use this technology cost-effectively?

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 early, but you talked about $900 million to $1 billion in adjusted EBIT for 2023. I guess investors should think about that for 2022 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 or other areas to offset the year-over-year delta in 2022 versus 2021?

21 to 22 is going to be a difficult comparison assuming we normalize earnings because of this surge in acetyl. We consider our acetyl foundational levels to be around $800 million, now moving towards $900 million over the next two years based on the capacity adds and other actions we've taken. We expect continued productivity; assume that's about $0.25 EPS year-on-year. EM should continue to grow at about a 10% CAGR or higher, which will also offset. And timing is uncertain, but M&A will also be an important factor over the next two years to complement organic growth.

Got it. And then on the second half for EM, 7% volume growth in first quarter — obviously Q2 is normally strong volume growth. But what's underpinning the outlook for the second half for EM? Will you be at that kind of double-digit growth and if so, what's driving it?

For EM, second quarter we think will be flat to first quarter because of expected softening in auto due to the chip and resin shortages. We are seeing recovery in medical beyond implants — diabetes applications, for example, were up 50% from Q1 of last year to Q1 of this year. Growth in other areas like 5G and electronics and industrial applications will continue to support a greater-than-10% CAGR 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 guidance on EM is impressive. It seems to indicate the $550 million number you gave 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 picking up on? I'm just kind of going off normal seasonality and your Q2 guide and rates and stuff like that.

No, 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 yet. We do expect some effect in Q2, but we also see recovery in Q3 and Q4. As we get better visibility into June, we see continued growth. Despite the resurgence of COVID in various regions, we haven't seen it impacting our demand numbers. So we are getting more confident in that $550 million number and above going forward.

Okay. And the $400 million EBIT number is pretty big. It kind of implies you're pulling product out of VAM and selling it into acid. Is that true? In the past you talked about pushing more downstream with 50% to 55% of acid moving down to VAM. Did you move backwards on that? Have you been more opportunistic selling into acid and subsequently tightened VAM as a result?

Not really. What's different in this surge compared to 2018 is we've seen pull-through in VAM and emulsion as well. In 2018 we moved a lot of stuff back to acid because the price didn't pull through downstream. This time we're seeing downstream derivatives follow acid pricing because end markets are strong. So we haven't made that same shift back to acid in the same way.

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

Good morning. Lori, in your prepared remarks it's evident you plan to run your whole network very hard. The one exception 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 full out at Clear Lake?

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

Okay. 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, I was coming up with a larger number. Can you refresh us on CapEx and how much working capital you're penciling in at this point? Also, do you have any extraordinary items beyond the $100 million settlement with the European Commission?

Kevin, the simple answer is nothing more than the $100 million that was already baked in. CapEx we are planning between $500 million and $550 million for the year, and a lot depends on timing. We inherently plan toward the higher end of that range. The balance is a working capital build as I stated earlier. Duffy called out the incremental $450 million or so of EBITDA versus our original guide, and we do expect to collect that as cash — though a portion likely slips into 2022 because of the 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 healthy sequential improvements in engineered materials. Could you walk through that sequential bridge in earnings and explain the benefit of the increases such as volume leverage, positive mix? Maybe is there an uplift in less differentiated polymers where supply-demand may have been tighter?

Aleksey, if you look fourth quarter to first quarter, we had a significant uplift in engineered materials — almost doubled earnings in EM. We had about a 6% increase in volume driven by continued growth in demand across sectors: automotive returning to pre-COVID levels in some places, industrial, and continued recovery in medical beyond implants. We saw about a 6% increase in price — roughly half was proactive pricing measures we took last year to get in front of raw materials; the other half was product mix, with more medical and higher-value applications. We also benefited from not having a palm turnaround this quarter (we took it in Q4 last year), which was about a $30 million uplift, and about $10 million uplift from affiliates across the board. Those were the big factors in the dramatic uplift in EM.

Thank you. Quick follow-up: you mentioned disruptions in nylon and PBT supplies. How long do you think this could last?

We think those disruptions will continue through the second quarter and should start resolving as we move into the third quarter.

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

Thanks for taking my question. I'll start on the longer-term outlook for acetyl. You announced capacity additions; a couple years ago there was some rationalization in VAM in Europe. How do you see supply and demand in the Acetyl Chain over the next couple years? Do you expect further additions or opportunities for consolidation? Also, you've noted strength in end markets — do you believe those are structural or more near-term cyclical developments?

Longer-term, I believe there's a structural improvement in demand for Acetyl Chain products. Many go into construction and infrastructure, paints, coatings, packaging, and e-commerce-related packaging growth. Moves to weatherproofing and insulation driven by energy efficiency initiatives also support demand. I expect some capacity to come online in the next few years, but not a lot in the near term because builds take time. Four years out I expect some additional capacity if demand continues. Also, in China, environmental and safety regulations could force consolidation of capacity. I don't think this pricing level will continue forever, but I do expect fairly healthy margins going forward based on these changes.

Thanks. You provided a $13 or $14 outlook for a couple years out and mentioned potential M&A. Could M&A factor more concretely into your longer-term outlook and perhaps push you toward a higher figure? How would you think about that?

At Investor Day we did not assume any M&A; we modeled share repurchases for simplicity. We're very active looking at M&A and have seen more parties interested recently. The M&A market is opening up with more opportunities surfacing, so we're hopeful we'll be able to do meaningful M&A in the next 18 to 24 months, but nothing committed yet.

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 simply rank your top three end markets right now on EM in terms of overall demand strength.

Electronics would be number one in terms of demand strength. Medical is probably number two in terms of strength of growth — it's not our largest market but is growing very quickly. And automotive, despite the chip issues, is probably number three in terms of continued growth potential.

Great. We're seeing this huge spot VAM and acetic acid crisis in China. Are those high prices a result of current outages, or should we be on the lookout for future outages that were deferred from Q1?

The high prices started with the demand lift coming out of Q4 and were aggravated by winter storm Uri. Normally the U.S. exports into Europe (the U.S. is the lowest-cost location), but with nothing coming out of the U.S., supply came out of China and other parts of Asia, driving higher pricing in China and Asia as well as exports into Europe. Going forward, it will still be tight but could be tightened further depending on timing of China turnarounds and any unplanned outages globally.

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

Good morning. In 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?

We haven't seen raw material volatility impact the rate of new projects. In fact, our project model is performing well. Compared to Q1 2020, we've increased the number of projects won by 13% and the value of those projects is more than 20% higher year-on-year. The project model is healthy and supports the greater-than-10% CAGR growth we expect.

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. First question on VAM and your ultra-high molecular weight product going into battery separators. Can you tell us, Lori, how much of polyamide (palm) is in ICE versus EV? And what sort of growth do you expect in your ultra-high molecular weight polyethylene as EV penetration increases and wet-end capacity for separators comes online? Second, on acetic acid and VAM, what's the current payback for a new entrant or current player considering the better demand-supply balance compared to previous cycles?

On polyamide content — the difference in the polymer content between ICE and EV is not large for the specific polymer you mentioned; the differences are more about other components in vehicles. For GUR (ultra-high molecular weight polyethylene) for battery separators, we've seen very significant growth over the last few years. LIB separator demand grew about 25% from 2019 to 2020, and between 2020 and 2021 it's even higher than 25% year-on-year. Demand for GUR is huge; we can expand that capacity at relatively low capital cost. That's why we announced our Bishop GUR plant starting up next year and another GUR plant in Europe starting in 2024. On acetic acid and VAM economics: if you're expanding downstream from an existing site with good capital efficiency, you can see attractive paybacks — nominally around three years. For a brand-new greenfield acetic acid build, capital and infrastructure needs make economics much longer — closer to seven to ten years for payback, depending on efficiencies, because you need hydrogen, methanol, CO, and industrial infrastructure. Transport and specialized storage add cost, so greenfield acetic acid is expensive and slow to pay back.

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. This 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.