Greetings and welcome to the Celanese Corporation Second Quarter 2021 Earnings Conference Call. 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 is now my pleasure to introduce, Brandon Ayache, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Daryl. Welcome to the Celanese Corporation 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 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.

Thank you. We'll now be conducting a question-and-answer session. Our first question is coming from the line of Duffy Fischer with Barclays. Please proceed with your question.

Yes. Good morning and congrats on a nice quarter and a big raise. I guess two questions. First one Lori I think either on the Q4 call this year, the Q1 call, you talked about one 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 what I just want to see have they been marketing that product? Is it producing and what impact that you see not have on the market or do you anticipate that having on the market?

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

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

Fair enough. And then just a follow-up, 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 is something you would kind of call structural to make capital decisions also? What's the right level of profitability to think about?

Yeah, I think as we go forward, if we start thinking about 2022, we're really thinking about a foundational level of earnings in the $900 million to $1 billion range, growing into that range over the next two years. We're really thinking about engineered materials closer to $700 million and then if you add other businesses on top of that, you get to kind of that $750 million to $800 million range, and then you think about acetic acid right around $60 million a quarter. So I think that would be kind of the right level. I'd consider those pretty foundational levels of earnings at this point in time.

Great. Thanks guys.

Thank you. Our next question comes from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your questions.

Thank you. Good morning, everybody. 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. That decline a function of purely a supply normalization or is demand in the region starting to moderate? I guess I am just trying to get its micro pulse in China in context of the narrative that it's in the market, but it's slowing in the region?

Yeah, I think it's a little bit of both. We're seeing some supply variability, and of course it varies day by day, but I think supply has stabilized compared with earlier this year as we come out of Q1 in the Western Hemisphere. Now we have been in a period of higher turnarounds 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 they're within the normal level. So supply has certainly stabilized since the 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, especially in Southeast Asia. So it's a little bit of both. What's interesting, though, is if you look at the moderation that was called out in China pricing, it's really a very slow moderation compared to what we saw in 2018. We think that is because it is demand-driven as much as supply-driven, whereas in 2018 when supply returned it dropped very quickly. If you look at recent prices, China prices have been really stable over the last 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, what phase of the rebuild are we in currently? And then also your comments on fourth-quarter earnings seasonality being minimal? Can you just expand on that as well?

Yeah, so inventory rebuild: we're in the pre-rebuild phase still. Everybody is talking about wanting to rebuild, but we are not seeing volumes being rebuilt in the distribution supply chain or really in the engineered materials supply chain as well. So there is a desire to rebuild, but both businesses are still supply-constrained, not demand-constrained. So I'd say we still have a long way to go on the rebuild. In fact, our anticipation is that it will last well into 2022. On the fourth-quarter seasonality, that's exactly the reason we're saying we expect less seasonality in Q4: as prices continue to moderate slowly, we will see people starting to rebuild as supply is available. For example, paints and coatings typically see a good bit of seasonality in the fourth quarter, but 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. We really are expecting much less seasonality in acetic, and then slightly less typical drop-off in the Western Hemisphere in the fourth quarter. For all the reasons we've been supply-constrained most of the year, we expect automotive as well as other end users to be stronger than typical in the fourth quarter.

Awesome. Thanks so much.

Thank you. Our next question is coming from the line of John Roberts with UBS. Please proceed with your questions.

Thank you. 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?

Yeah, we have seen a real shortage in fiberglass. I'm not sure I can really articulate all the reasons how it started, but what we do know is all of the players right now in fiberglass are short. 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 this second one, but when CRM Tech and Celanese were both part of Hertz, do you have any old timers that know whether the two businesses worked closely together? I know selling these 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 on that.

Yeah John, it was really operated very separately. Hertz was a very large company and had a lot of different components to it, and it was operated very separately.

Okay. Thank you.

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

Thank you. Our next question comes from the line of Bob Koort with Goldman Sachs. Please proceed with your questions.

Thank you very much. I was wondering if we could talk on the engineered materials business: the COVID impacts were sort of affecting the auto cycle and production rates and healthcare 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. For engineered materials, I would characterize that most end markets have recovered to pre-COVID levels at this point, with the exception of medical implants and auto. Implants have improved across the second quarter; we expect them to continue to recover through the end of the year and really be back at normalized rates in 2022. Other areas of medical have seen really good growth this year, including long dose drug delivery and diabetes applications, so medical overall has recovered; it's specifically the implant business that will be into 2022 before full normalization. Auto was down 8% in the quarter, including North America down 12% and Germany down 15%, which were our two largest end markets. Autos have prioritized premium vehicles, where we have the majority of our content, and we've been helped by programs we've put in place specifically around electric vehicles. For example, in the EU, the share of EVs is much higher and the project pipeline where we've grown volumes has really helped us. We've expanded our content in electric vehicles; some applications have much higher polymer content versus ICE vehicles. So as we go to the second half, we do expect growth in Q3 as we see chip recovery and 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. We continue to see a few percent growth across other end users as we move through the end of the year.

And on a follow-up, Lori, I think in the past you talked about some parts of engineered materials becoming a little bit more commoditized. Was there any over-earning or over-margin products during the second quarter, or is there still margin upside in some of those more mainstream products there? Thank you.

No, I think there's still more margin upside in our products. We had a few impacts that brought our margin down slightly from last quarter: we increased headcount in plants to deal with increased demand, we had higher energy costs especially in Europe, and logistics and transportation were certainly a big headwind this past quarter and will likely continue to be a headwind through the end of the year and into early next year. As the labor market stabilizes and logistics and transportation stabilize, we expect to get back to previous margin levels. The real difference from the past is our constraints in Q2 and continuing into Q3 are not demand-driven; they're supply constraints—our ability to make resin and get additives, especially glass fiber, which has continued to deteriorate moving into Q3. So there's volume upside as we resolve those supply constraints.

Yeah Bob, I just want to clarify what you alluded to: standard applications have more competition, but these are still engineered solutions and we obviously work on the more value-add premium side for our new project pipeline. That standard part of the portfolio is always going to be a critical element and really building blocks to get in the door in a lot of places.

Thank you. Our next question is coming from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks very much. Given that there's been so much supply volatility and volatility in demand, 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?

Fair question. We had targeted $100 million to $150 million of growth productivity. We are on track to deliver $150 million of growth productivity this year. Those are cost savings—planned optimizations and small bottleneck projects. We're focusing on how to get more throughput because we are supply constrained, but we will deliver at that historical level of cost productivity as well.

Yeah Jeff, we typically break productivity into four buckets: manufacturing cost reduction, procurement cost reduction, and S&A-type reduction, among others. The S&A bucket is very small this year; the procurement bucket is very small this year. Where we shifted in 2021 is more on manufacturing cost and operational improvements that Lori talked about.

And then for my follow-up when you talked about your acquisition criteria being return-based, does that mean the direction of your acquisitions really make the direction of diversification over time? That is, should we view Celanese as really not being bound by wanting to have more polymers, but really trying to find other businesses where the industry structures are good and you think that the returns are high?

I don’t think we're going to acquire something completely out of our lane. One of our criteria is that we want to be able to deliver synergies. To do that, we have to be familiar with the end market, be able to use our model, or it has to have some connection to our engineered materials model or our acetic model. So acquisitions may be new materials to us, but they will have some connection to our existing business where our sales force, commercial teams, and manufacturing teams can add value.

Thank you. Our next question is coming from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Thank you and good morning. Scott, just wanted to ask you on 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 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 just mean it in terms of where is it going to be, number one. And then number two, given everything that's gone on with raw material availability and so forth, is there any consideration being given to hold more raw materials so that you can be better positioned or opportunistic when we continue to see supply disruptions?

Let me take the last part first. We don't take a one-size-fits-all approach. It really depends upon the business and the material and where we're at. Reliability of supply in certain materials is very important right now, and we may choose to hold a little more raw material in certain areas if we can get it. We are not bound to a specific working capital number because our working capital efficiency has historically been very strong and we can bring that down fairly quickly if necessary. Our estimate for free cash flow greater than $1.2 billion for the year assumes we get some working capital back toward the end of the year, but certainly not all of it and not back to how we started the year. A lot will depend upon raw materials and pricing. One important characteristic is accounts receivable: with what we've seen in pricing in Asia and asset yields, which tend to have slightly longer payment terms, we're carrying a little more accounts receivable today than historically. As that normalizes, we'll get some of that back, so there will likely be a catch-up into next year.

And just as a follow-up there were also comments in your view about China prices coming down, but that there will still be strength in Europe and India because I think there was a reference to typical lag. Just wanted to better understand what causes that dynamic where you could have price discrepancies between those areas?

If you think about it, there is not much acetic acid production in India; basically that material comes out of China or Singapore or elsewhere in the world, so you have a shipping delay when prices change. For Europe, most of the material going into Europe comes either from the U.S. or from Asia, so you also have that shipping delay. It's really just that simple.

Thank you. Our next question is coming from the line of John McNulty with BMO Capital Markets. Please proceed with your questions.

Thanks for taking my question. 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? Is it really just a reflection of current markets and your comfort in demand fundamentals or does it include M&A?

We'll give better guidance in October as we have more time to work through this. The $13 to $14 earnings per share that we had for '23 moved up a point into '22. I would say that is with or without Santoprene. Santoprene is definitely value accretive to us, but we model all of our cash being used for stock purchases, so while there's some uplift from Santoprene, I would look to Santoprene taking this closer to the high end of that range whereas without Santoprene we would be at the lower end.

And then just as a follow-up, the guide that you have 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'm curious how comfortable you are with such a tight range on such a big base? Have you locked in some commodity prices, have some customers reached out to lock in things for the year, or how do you get the comfort you have in such a volatile market?

If you look at Q3 guidance, we're halfway through the quarter already and we can get pretty comfortable with Q3. For the full year, it's a little different; supply constraints could be the limiting factor, not demand. Even with market volatility we can only sell the amount of material we have, and we know how much material we have. Yes, there can be big swings in asset yields which could change a bit, but given where we are in the year, we felt comfortable providing a narrower range.

John, I think we tried to outline in the prepared remarks some of the assumptions we make to get to that range. As those assumptions change, we'll update in October.

Got it. Fair enough. Thanks for the color.

Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.

Good morning, Lori. A question around regional demand trends: vaccination bases are very different by region, particularly in Asia where some lockdowns continue. On top of that, you overlay supply chain constraints. What are you seeing in terms of demand growth disparities between regions and, going forward, are we entering a period of above-normal demand growth as more parts of the world normalize?

I'd say earlier in the recovery Asia was strong, then the Americas and Europe recovered later. At this point demand is pretty normalized around the globe and is fairly consistent across regions. While we were worried about the Delta variant, we haven't seen much impact yet, although there are concerns and we see some signs of impact in Southeast Asia. In general, the globe is pretty consistent in terms of recovery right now.

Understood. Moving on to the tow business: obviously very strong volume growth sequentially in Q2 and you mentioned some of the Q1 demand carrying into Q2. How are you thinking about volume growth in that business in the back half?

The volume growth in Q2 was indeed because we worked with customers in Q1 when we had shortages due to the freeze and acetic acid constraints, so some demand moved into Q2. If you look back, Q1 had reduced volumes that showed up in Q2. We see volumes being stable through the rest of the year, roughly at the average. I'd expect second-half volumes to look like 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 timing of dividends from our Chinese JV are typically heavily weighted to the first half.

Very helpful. Thank you so much.

Thank you. Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you. Lori, just on the M&A pipeline, excluding CRM Tech: how is that pipeline today?

Our M&A pipeline remains very robust. We continue to look at deals of all sizes. You saw that with Santoprene, which was a big bolt-on, and another small bolt-on. We're very active looking at deals of all sizes. We have the financial capacity and management capacity to continue to look at additional M&A through the rest of this year and into next year.

In the prepared comments, you laid out a number of projects, many coming online over the next couple of years. How has that mix of projects in 2024 through 2026 changed versus the current period?

Really the only thing we have on the books at this point for that period is the GUR expansion in Europe, which we expect to come online in 2024. Given we're in 2021, we're just starting to look at what demand will be in that period.

Thank you. Our next question is coming from the line of Michael Sison with Wells Fargo. Please proceed with your questions.

Good morning. This is Richard on for Mike. 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 higher costs and how much was part of adding value to your customers?

Our team has worked aggressively since Q4 last year to push price, knowing raw material pricing was increasing. That was a primary reason for the price increase, but we raised price more than raw materials increased. That's a question of mix: in a very tight supply-constrained situation we've been prioritizing higher-margin products and regions to maximize returns for the molecules we have available.

Okay. And as a follow-up on the acetic value chain, you gave some color about pricing coming down in the second half. What's your view on spreads? Obviously you're low-cost, but your Asian competitors could get squeezed as prices fall. How do you think about that heading into the end of the year?

If you look at China, our technology is advantaged versus some competitors' technologies. As prices fall, some competitors will get squeezed on margin. Our Gulf Coast capacity uses natural gas and is the most cost-effective in the world, so we will maintain that margin advantage versus competitors as prices moderate.

Thank you. Our next question is coming from the line of P.J. Juvekar with Citi. Please proceed with your question.

Yes. Hi, good morning. Can you talk about your Elastomers acquisition from Exxon? What industries are you targeting and why do you think Exxon is getting out? Is there any new supply coming online in China or elsewhere?

We're really excited about the acquisition. I can't speak for Exxon, but my view is this wasn't a core business for them. Exxon is oil and gas focused and this is a highly specialized business; it doesn't fit their model as well. This business is largely into automotive—things that need to be recyclable, have soft touch, or are related to light weighting—but there are also applications in medical and construction, seals, and other areas. We see a lot of opportunity to cross-sell with our automotive side and other markets where we already have relationships. Exxon struggled to run a highly specialized, service-oriented business at scale; we see value uplift opportunity here. In terms of new capacity, we're not aware of any new capacity coming on in this area. It's highly specialized and we don't anticipate new entrants immediately.

PJ, it's important to remember this is an engineered solution business; supply-demand utilization is less important because of the value-add and uniqueness of this material and brand. That should be really complementary to our engineered materials business.

And Lori, on the tightness in logistics and labor markets that you talked about, you think they will last into 2022? Is that a U.S. phenomenon or is that happening in Europe as well? Why is this taking so long to get ironed out? Is it logistics or labor?

They're really two separate things. Logistics and transportation issues are global; there's just a lot of volume being moved around the world, and it's hard right now whether by ship, ground, or rail. We see constraints and expect some stabilization possibly after Chinese New Year; it could take into next year. The labor phenomenon has been more of a U.S. issue; we're hiring to expand and compete with others like Amazon for warehouse workers, so it's a very competitive labor market in the U.S. We have to adjust wages and shifts. I think this will stabilize as more people return to work, but this could also take into next year.

Thank you. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Yes. Good morning. 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 constraining? And on the price side, is there opportunity to raise price in engineered products that require glass fiber? Maybe you could elaborate on what's going on there?

Let me be clear: in Q2 we estimate we lost about $5 million of revenue due to glass fiber problems and logistics. In Q3 that impact will probably double, but we expect to recover some of those volumes in Q4 and into 2022 as glass fiber makers come back and volumes increase. Glass fiber used in polymers is a small percentage of the total glass fiber market, but it's a slightly more profitable segment. We've converted some formulations and prioritized higher-margin polymers to get product out, so there's some upside. About a third of our portfolio uses glass fiber, so it's an important raw material. We've taken commercial steps to secure supply in future years to avoid recurring problems.

That's helpful. And secondly, do you have plant maintenance turnarounds in Q3 or Q4 we should keep in mind for modeling?

We always have small turnarounds and maintenance items, but total maintenance for this year is only $30 million for the entire year, split pretty evenly between the first half and the second half. It's not something that will materially affect volumes or costs in modeling.

Perfect. Thank you very much.

Thank you. Our next question has come from the line of Aleksey Yefremov with KeyBanc. Please proceed with your questions.

Thank you. Good morning, everyone. You mentioned in your prepared remarks an 8% sequential impact on automotive volumes. Did that number include shortages of nylon, glass fiber, PBT, etc., or were those raw material shortages an additional impact on top of that? If so, how large was that?

That 8% was inclusive of everything, Aleksey. It included both demand from auto and constraints we had due to resin and additive supplies.

So if we were trying to normalize for the current state of demand, it's that 8%, and maybe since automotive is a third of your business, something like 2.5% should be added to topline when everything is running well. Is that the right way to think about it?

Yeah, roughly that's about right. For this kind of demand you just need to see a few percent increase across everything to stay stable, so that's a fair way to think about it.

Thank you, Lori. Quick follow-up on EM margins: should we look at second-quarter margins as the benchmark for the rest of the year or will these margins be rising?

Based on what I said earlier about supply shortages, logistics, and labor, I would expect Q3 margins to look pretty much like Q2 because the glass fiber issue continues through Q3. I would expect Q4 margins to look more like Q1 again as supply constraints ease.

Thank you. Our next question is coming from the line of Matthew DeYoe with Bank of America. Please proceed with your questions.

Thank you. In the past you've been calling for a more normal acetic industry asset yield chain next year, which implied something like the $700 million to $800 million number. I think I heard earlier you said $900 million to $1 billion. Do I have that wrong, or is that a more optimistic view as a function of the better backdrop you've been talking about?

As we've worked through this year and seen the impact of bottlenecks and productivity improvements, optimization of our model, and addition of U.S. tax benefits, we feel we've lifted the foundational level of earnings from that $700 million to $800 million range to now $800 million to $900 million, and we're expecting some continued benefit in asset-yield margins into 2022 that put us in that $900 million range for asset yields.

Understood. Similarly, breaking up the company would result in something like $50 million of synergies in the past; is that still around the right number?

I think $50 million is still a good number to use. I don't see that going a lot lower; we used to think it might be higher. $50 million is a reasonable range for the synergies we would expect in that scenario.

Thank you. Our next question is coming from the line of Frank Mitsch with Fermium Research. Please proceed with your question.

Good morning and 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 was wondering how much you may have lost by not having it through the entire quarter?

I don't have an exact number, but if you look at the residual impacts of the winter storm in Q2, we think it was probably about a $30 million impact. That came from higher energy costs and inventory impacts primarily.

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

In Q2 we estimate global utilization was just over 90%, and China just under 90%, although China was much higher intermittently and probably near 100% at many times during the quarter. VAM globally was basically near 100% for the quarter. With capacity coming on in China in August as anticipated, we think utilization will remain at similar levels because there's pent-up demand in the chain and a need to rebuild inventory. Right now we still think we're around that 90% range globally and likely to remain so during Q3.

Thank you. Our next question is coming from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.

Hey, thanks for taking my question here. Congrats on the results. The pre-release comments listed out nine discrete organic growth projects. What is the big-picture EBITDA number for those projects in total?

Matthew, we haven't called out a specific EBITDA number for each project. We included that uplift inherently in our Investor Day guidance for 2023, and we indicated additional uplift into 2024 and 2025. We'll provide more clarity as we update that outlook and how it materializes in those out years, but we haven't specifically given a number for all the projects combined.

Got it. That's it for me. Thanks.

Thank you. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good morning. Two quick ones: given the supply chain lags and stronger demand and low inventory levels, how resilient do you think the acetic value chain would be if there was a direct hit on the Gulf Coast from a hurricane compared to normal hurricane impacts? Second, can you give a sense for how competitive intensity in process R&D and asset yields is evolving? Are the Chinese doing the work, are you seeing the competitive gap closing or widening?

On hurricanes, it's hard to predict because it depends where it hits and what it takes down besides acetic acid plants—does it take down consumers too. In a tight market any disruption gets amplified with higher prices and some panic buying. So the threat of a hurricane in a tight market would probably cause upward movement in the market, but it's hard to quantify the overall impact. On R&D and technology, we continue to invest in R&D and we know competitors do as well. We continue to have advantaged technologies in acetic acid, VAM, and derivatives; we don't see the gap closing materially at this time. Competitors are moving up too, but we still see a technology advantage.

Daryl, make the next question the last one, please.

Thank you. Our final question is coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.

Great. Thanks for taking my question. Just wanted to follow up on the long-term outlook on the acetic value chain: do you think we've entered a structurally higher area of earnings power? I know you changed your footprint optimization, but is there a scenario where you'd see continued global capacity additions and would you participate in that? There appear to be pockets of production shortages globally, so could you provide a longer-term view on capacity for you and the industry?

A few points: we've improved our foundational earnings through productivity, debottlenecking, and strengthening our supply chain. We also believe acetic industry dynamics have improved long-term. If you think about growth from 2018 to 2021, the industry saw nearly a million tons in demand growth and we didn't add new capacity in that period, so the market is tighter than in 2018. There's capacity coming on in China in August and we have 1.3 million tons of our own capacity coming on in 2023. Even adding those together it's a few years of growth in a very tight market. Building new capacity is expensive; our 1.3 million tons at Clear Lake costs about $315 million, but greenfield builds in China can be well in excess of $2 billion given infrastructure, syngas, hydrogen, energy sources—it's a big hurdle. Even if someone started today, they'd be four to five years out. So for the foreseeable future, we see this remaining a robust, tight market.

Thank you. 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. Daryl, 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.