Greetings, and welcome to Celanese Corporation Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to your host, Chuck Kyrish. Thank you. You may begin.

Thank you, Rob. Welcome to the Celanese Corporation second quarter 2019 earnings conference call. My name is Chuck Kyrish, Vice President, Investor Relations and Treasurer. With me today are Lori Ryerkerk, Chief Executive Officer; Scott Richardson, Chief Financial Officer; and Todd Elliott, Senior Vice President, Acetyl Chain. Celanese Corporation distributed its second quarter earnings release via Business Wire and posted prepared remarks about the quarter on our Investor Relations website, yesterday, after the market closed. As a reminder, we will discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliation to the comparable GAAP measures on our website. Today's presentation will include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of the press release as well as the prepared comments document. Form 8-K reports containing all these materials have also been submitted to the SEC. Since we published our prepared comments yesterday, we will now open the line directly for your questions.

[Operator Instructions] Our first question comes from David Begleiter with Deutsche Bank.

Lori, just on your implied Q4 guidance, what's driving the expected improvement in engineered materials and how much of improvement do you expect in that segment in Q4?

Thanks, David. If we look toward second half through the third quarter into fourth quarter, we do see indications that kind of the acute de-stocking that we've seen in first and second quarter is unlikely to continue. In Acetyl, although inventories are high, it really represents only a few weeks and we see some indications that there's some movement there. On engineered materials, again, talking to some of our key customers, some of the folks in Tier 2s and Tier 3s in the supply chain, especially automotive and thing, we see indications that stock levels have pulled down quite significantly in the first half, and we don't expect that to continue. So, we're not forecasting re-stocking. [Technical Difficulty] expecting to see demand going back to more normal levels and we're suggesting that would have not as much seasonality than in fourth quarter, because we've already seen the de-stocking occur this year. Just, by way of evidence on that, if we look at our order book for July, it’s already about 10% higher than it was in April at this time. So that's really the basis for our outlook for the rest of the year.

And just update maybe on the M&A pipeline and the transformational transaction that was discussed at the last earnings call.

So, we continue to look at all levels of M&A, David, both kind of small bolt-on acquisitions as well as the more transformational activity that Mark is busy looking at. On the bolt-ons, while we have so many prospects we're looking at, while we haven't found any that are delivering at the value we would like it to complete this year, but that activity will come through; and as I said, Mark continues to work on the transformational M&A, but as we told you all before, that that will come when it comes and little bit uncertain on that timing.

And the next question comes from Jeff Zekauskas with JPMorgan.

In your engineered materials business, your equity income was down in the second quarter year-over-year. And, you have some strong comparisons coming up. What's the trajectory of equity income? I know that there are timing issues, having to do with oil prices.

Yeah, so if we look at equity income year-over-year, we saw about a $27 million decline there, actually almost two-thirds of that, 16 million of it was really due to affiliates and of the affiliates, 10 was due to turnaround timing at Evancina [ph]. So clearly, we expect that to reverse itself. We had some weakness in other affiliates in the first -- in second quarter and in the first half, as I think we described last quarter, specifically around our China affiliates that were more exposed to auto. We've seen some strengthening of that in second quarter. So, I think going forward again, we’ll see the reversing of that turnaround time in Evancina. We are seeing some strengthening in our affiliate performance. And then the remainder of that, kind of the additional 10 million year-on-year is just general market conditions, which, as I described to David's question, we do start to see some signs of starting to recover some of the demand, as we go into the second half.

Is acetic acid pricing in China getting better sequentially, and might it make a difference to your returns in the third quarter.

Well, certainly if it gets better, it only makes a difference to our returns in the third quarter. I think indications we've had in the last few weeks is, we are starting to see some firming of pricing in acetic acid. Things move around most, so whether that’s sustained or not, I think is a question. Scott, do you have any comments you want to make around acetic acid pricing going forward?

Yeah, Jeff, the demand situation in China is probably the most important thing to watch. We saw demand come off by at least 10%, probably more than that for acetic acid up sequentially, Q1 to Q2, that's an industry comment, not a Celanese comment. But, that's weighed on demand conditions, of course and then therefore pricing conditions and pull-down utilization rates in the second quarter. We're watching it very closely, we’ve pivoted our business to derivatives, mainly vinyl acetate and emulsions and have grown that space by 9% sequentially on volumes, and that's lifted the overall Acetyl business by about 2% sequentially. But to your point, we're watching China price, we’re heavily involved, of course, in that part of the world, and demand is a key thing to watch at this stage.

The next question comes from Bob Koort with Goldman Sachs.

I was wondering if you could give us some breakdown of your CapEx, you talked about 0.5 billion in 2021. Can you give us those buckets in terms of maintenance or cost reduction activity, and then gross spending in maybe some of the highlighted projects that are in there?

So if we look at where we are in, let me just start with ‘19, so in ‘19, we're approaching 400 million in CapEx. If you look at where that's being spent, about 50% of it is in EHS and what I call maintained margin projects. So turnaround, reliability-related projects, maintaining the equipment to basically maintain where we are, about 25% of it’s in cost reduction projects. And I think what’s significant about that is that it’s about three times more than we've had in previous years and that really reflects our continued focus on helping ourselves, if you will, through productivity by doing relatively minor investments, so that yields large future cost savings. And then about 25% is in revenue generated. Now, as you go forward, and you’re seeing that number getting closer to 500 million, all of that growth is really in revenue generation. So it really is – and/or productivity. So, it is projects like methanol expansion, it’s projects like the VAM expansions we’ve done, we have additional compounding lines starting up as we go forward as well as some de-bottlenecking activity in various polymers in the US and in Europe and in Asia, actually in all three regions. So, the real growth is all in revenue generating activities, either volume and/or productivity, and in almost all cases we can trade off productivity for volume.

Yeah. Bob, I think on a go forward basis, I think what I would bake in there on that is about 150 million of MOB type CapEx and the rest is exactly what Lori talked about from a cost reduction and rev gen standpoint. But, we look at the entire bucket of CapEx and the returns we generate on that entire bucket, inclusive of MOB, at 20%, greater than 20% return. So that's kind of what I would bake in on a go forward basis.

Can I ask on the EM side? You guys had some pretty explosive growth there 4, 6, 8 quarters ago, it started to slow. And then you're also battling maybe on raw material pressures and being more selective on your pricing. Well, this quarter, it looks like both volume and price got dinged. I guess I could see the volume side. But can you talk a little more about what's going on in price and maybe how your pricing in EM correlates to what's happening in the raw material?

Yeah so, if we look at engineered materials, we do see, as we’ve talked about, we’ve seen a decline in auto demand, we've seen the decline in electronics demand. Clearly in some areas, especially nylon, for example and elastomers, which has been heavily challenged by those declines, we have seen a lot of competitors in the market driving price down. And we've seen a lot of pricing being done to compete for volume. Now, we haven't followed that all the way down. And obviously, that's why our volumes are somewhat off in those areas. But we have seen some pricing pressure, especially in those areas and especially as it applies to automotive. What I would say there, nylon and elastomers are heavily impacted by the M&A we had over the last two or three years. So that's also kind of a year-on-year and quarter-on-quarter, we're not, we haven't had any significant M&A in the last year. So that is a change from say, the past several years. And what we see with our affiliates is while we're happy overall with their financial performance, a lot of the volume that came in with, sorry, not with our affiliates, those are acquisitions, a lot of the volume that came in with our acquisitions were not as differentiated as our base portfolio, not generated using the same project model and therefore not as sticky as some of our base portfolio. So, as we've gotten into this more challenging economic backdrop, we've seen some of those volumes not be as resilient as our base portfolio. Over time, we expect that to change as we are developing those volumes consistent with our business model. But we have seen those influences come together in this quarter.

Our next question comes from Vincent Andrews with Morgan Stanley.

Just a question around your capacity in acetyls in Asia, there were some reports during the quarter that you were taking your own utilization rates down. So, could you discuss that a little bit and then help us understand where rates are now in the third quarter and where you expect them to be?

Yeah. So maybe, I'll start and ask Todd to weigh in more specifically. I mean, in – generally in acetic acid in China, we are seeing a demand decline of more than 10% in the second quarter and that put China capacity utilizations around 70%. And that's versus, if you go back say a year ago, that was well in to the mid-80s or even a little bit higher. So, we're certain utilization is significantly down in China, in general. Our own capacity, I'll let Todd come on, on that. But I will say, we did see some other producers in China take units down entirely and take capacity back in response to that, as that combined with kind of historically low level of pricing made it unaffordable for folks to run. Maybe Todd, do you have comments on that operations?

Vincent, we black power Acetyl’s network on a daily basis. I mean, this is what we do every day and every week and every month, try to get into and try to get to maximum value we can in each of the products and we did a great deal of that in Q2. Our activations were up 30% sequentially and this is our measurement of really actions and decisions that we take to just flex our network in the best way. So remember, we had a couple of turnarounds in the system in Q2, we had a vinyl acetate turnaround in Bay City, as well as in Nanjing, so that kept VAM rates lower in those two units. Acetic acid wise, if you look out a little bit, we do have turnarounds, the first part of a turnaround in Singapore toward the end of this quarter, Q3 and then mainly into Q4. So without giving specific rates by unit, I think the key takeaway is our flexibility, our ability to pivot, whether acetic acid or derivatives, is really the differentiation that we would point to. So, we intentionally moved plus 5% of our acetic acid tonnage downstream to our derivatives. So we shifted to VAM, shifted to emulsions 5% sequentially. That allowed us to grow VAM and emulsions by 9% volumetrically from Q1 to Q2 and then therefore lifting the overall chain by 2% sequentially. So those choices, those options and choices are what we would point to and really the end result is profitability, 189 million, if you would take out the turnaround that I mentioned before, which were about 15 million of headwind in the quarter, plus it's about that $200 million run rate for the business on a quarterly basis, while keeping EBIT margins above 20%.

If I could just ask in EM, on the volume side of the equation, you call it a couple of things that a little more color would be helpful. One, it sounded like in the first quarter, there was an inventory bill from some of the healthcare customers, can you just kind of help us understand how that volume does swing around from quarter to quarter. It seemed like in the first quarter, volume was strong, if I go back and look at the comments from them. So, how does that work if their volume shifts around? And then secondly, I think there was a comment that volume was also hurt by a mix effect. If you could just help us understand what that is?

And actually, those are really the same things. It continues to be a very strong sector for us, but it is a very relatively small volume sector with very high margin. And so actually small swings in volume can have a very big impact on our earnings. And what we saw in the first quarter is we did see customers, particularly in the UK building volume, in anticipation of a Brexit move, but it didn't happen, worrying about tariffs and availability and everything else relative to Brexit. And what it does again, it's not a huge volume, but it's going to good bit of the margin. If you look at our EM kind of quarter-to-quarter, first quarter to second quarter, of what we say is a volumetric impact, is of that volumetric impact, so 7% of the volumetric impact, 4% of that was actual EM volume, 3% was just the mix with most of that being medical. So just the fact that medical volumes got moved into the first quarter from second quarter, we see this from time to time, it was particularly big first to second quarter, but medical tends to be a bit lumpy. If we get a big order, once we had FDA approval and people will dock up as they prepare for run, and then they'll go down. So, it tends to be a bit lumpy or maybe there's some of our other business that we did see the first to second quarter, primarily because of the Brexit impact.

Our next question comes from Mike Sison with KeyBanc.

In terms of the Acetyl Chain, just curious, you guys, as you've talked about do a good job pivoting, seeing upstream, downstream geographically. And so if you think about the second half of the year, where do you think you're going to need to pivot to make your earnings outlook for the year, and maybe it's hard to say, but just any current that you’re going to stay downstream, that type of thought?

So on the Acetyl chain, quite frankly, we're quite pleased with where we are, I mean, continuing to turn in, seven consecutive quarters above 20%. And I think the second quarter is really just a good example of the strength of the model in Acetyl and the ability to have optimization to continuously do activations, as Todd just described, most value at wherever it exists beyond the chain. I think, an interesting point and maybe a bit to your question, if you look at the very low pricing we're seeing in Acetyls in China less, than $400 a ton, the last time we saw this level of pricing was back in first quarter of ‘17. And if you look at the earnings in first quarter ’17 for Acetyl, it was 109 million. You compare that to the second quarter now at 189 million, we've had an $80 million uplift in the value of the Acetyl chain in basically the same economic conditions based on the strength of the model and the focus on productivity and all of the other steps. Put another way, margins on Acetyl went from 14% in first quarter ’17 to now 22% in second quarter ‘19. So I think that really speaks to the strength of the Acetyl Chain. Really to achieve that 10.50 [ph] view for the year, it's really just continuing to activate that model and continuing to deliver on that 200 level quarter-on-quarter. And obviously, if we were to get for whatever reason, a good run up in the price of acetic acid in China in particular, that would just be more on top of that.

And then as a quick follow up, in terms of EPS, you did about, like $5 in the first half. And adjusted EBIT about, close to 800. So, if you look at the second half, you need a little bit more obviously in EPS by 50. This year, just the EBIT have to go up a lot in the second half to do better, or is it -- maybe just a thought on how the second half adjusted EBIT looks relative to the first half?

Yeah, we are assuming some improvement in market conditions based on my earlier comments. So obviously, EBIT will go with that. But, clearly, also on an EPS basis, we’re helped by the share buybacks that we've had in the first half of this year as well as last year. But let me turn it over to Scott to maybe give a more complete answer.

Yeah, I think that's really the point. I think we do need a slight improvement in the adjusted EBIT and I think Lori talked earlier about how to expect that, given the de-stocking we saw in the first half, that we believe the second half can be better. Order book, starting out in July, a little better than we saw, particularly in the second quarter. And then just what we saw in the first half of this year, we're currently not baking in the same level of Q4 seasonality. So, when you kind of take all those things into consideration, you did have slightly a better adjusted EBIT in the second half plus the benefit of the buybacks we did in the first half and what we expect to do in the second half.

Our next question comes from John Roberts with UBS.

Methanex is going forward with its third unit in Geismar. Todd, could you give us an update on the Fairway Methanol expansions that you're doing with Mitsui?

Yeah. Thanks, John. As we announced last quarter, our plan is to take that unit up to 1.7 million tons. That would be operational sometime in 2022. We're pleased with the output of that unit that continues to contribute value, is it running above the original design capacity. But we're on track again to raise that up by about 150,000 tons that would be shared with our partner and again, on track towards 1.7 million by 2022 and we’ll update that specific timing as we work through the progress. We did receive the requisite permit from Texas to proceed down the path here.

Okay, and then Lori or Scott, in the engineered materials business, could you share with us how much the automotive business was actually down during the second quarter? Was it down double digit percent?

So, if you look at automotive bills, we actually saw about a 3% drop, most of that coming entirely out of it. The US was actually up a little bit on the spring, so trust that EU was down. Of course, bills is interesting, but what really matters to us is what we're, what the demand for product is, and there, in our discussion with the tier 2 and 3 suppliers to auto in all regions, we were hearing from some of our key customers and distributors declines of 20% to 30% on volume. So clearly, an indication to us that de-stocking was continuing into the second quarter.

Were you down in line with those tier 2 discussions that you had?

No, our EM volume on an -- actual volume was down about 4% in total.

Yeah. And John, auto, the auto piece of that was just, maybe about a percentage point higher than that.

Our next question comes from P.J. Juvekar with Citi.

Lori, as a center of gravity for Acetyl shifts to the US and at the same time, for EM, the focus of growth seems to be China, does that mean that there would be less integration between the two businesses going forward?

It was an interesting question. P.J. I don't think there's less integration going forward. I mean, we have raw materials available in China, there's plenty of acetic acid producers. It just may mean that less of our own material is going into EM in China, but we continue to have a growing EM business in the US. So, I don't see it having a significant change in terms of the amount of integration between the two businesses.

And as acetic acid prices drop, you nicely pivoted to VAM and emulsions. And so that's a great tactical move from your team. But when do competitors catch up with that move, or are they not that flexible, because I would imagine that these are big, large companies that are global, and they should be able to do the same thing?

Yeah, so, the interesting thing is, I think, there aren't any competitors who can do the same thing. I mean, that's the beauty of our integrated model. I mean, there's a lot of competitors who make acetic acid, there are competitors who make VAM and there are competitors who make emulsions, there's not many who make all three from the start of the value chain [indiscernible] and methanol all the way through emulsions. And that's really where our model is, I think, differentiated from others and is strong and allows us to give less volatile results and this level of earning is because we are fully integrated to the chain and fully integrated geographically, which not all of our competitors are. So, we have the ability as we did this quarter to reduce our exposure to Asia and increase our sales into the Western Hemisphere, where margins -- available margins were higher for VAM and emulsions.

Our next question comes from Duffy Fischer with Barclays Bank.

A question around Lori's comment that your $80 million a quarter better now in this kind of a tough acetic – Acetyl’s market than you were in Q1 of 17. It would strike me that that's got to be one of three factors either better realized price versus the posted price, better cost or you're selling more volume into the market? Can you break it down into those three buckets that $80 million? Where does the majority of it come from? And how much do you think is structural versus maybe just some transitory fortunate business?

Well, so Duffy, I mean, I think we work very hard for these results. So what I would tell you is, I don't have the exact breakdown in front of me. I mean, it's a little bit of all of it. But it really is the ability to flex our model and make choices about where we take value out of the chain. So it's certainly price and the price we're realizing for VAM and emulsions, if you will, versus acetic acid. But, I think the point is, it is the strength of value chain, the strength of the geographic model, and the talent of our folks, if you will, to be able to constantly flex and make decisions every day about where to extract value in that chain, which makes us confident that we can continue to deliver these results, even in periods of low margin environment like we've seen in the second quarter.

Yeah. And Duffy, I could add, remember, we've added integration with methanol, we've added integration more recently with carbon monoxide, we expanded our vinyl acetate unit in Clear Lake by 150,000 tons. We've achieved more options, frankly, with this global network that Lori just outlined. So it's really the combination of that and the real time use of data, which provides us insights to make these calls, these activations to affect these decisions that contribute to the results we believe is repeatable and we're going to look to add additional value steps going forward. John asked the question about the methanol expansion, there's other value addition steps that we're pursuing, and [indiscernible].

And I think we shouldn't ignore productivity, I mean, for Celanese, we are delivering about 100 million a year in productivity steps. So again, roughly kind of 50-50, that certainly doing that year on year on year is making us more competitive as well, lowering our overall cost base.

And then, does the market believes that the coal gasification explosion at EMA is going to be a big deal for the acetic acid in the Acetyl’s market in China.

Yeah, Duffy, I think it's too early to get into that. And it's a terrible, terrible thing, many, many lives lost and multiple injuries in there and then on province, there's something like 11% of domestic Chinese capacity in that province. So it's a, from a country perspective, that province is a big producer. This particular unit was only a couple of hundred thousand tons, so call it two percent or so of the domestic capacity. So we're watching that, we're – it remains to be seen what the province does across the other units in [indiscernible] and what are the steps they take to curtail operations there. We're focused on what we can do with our customers to keep our efforts and business connected, and ultimately, work to Q3.

Our next question comes from Laurence Alexander with Jefferies.

Two quick ones. First on the uptick in the order book that you've seen recently. Can you give a sense for how broad basis is this or if there's any particular regions that are stronger than others, in terms of the pace of improvement? And secondly, on productivity and turnarounds, is there any lumpiness that we should be thinking about for 2020 and 2021 in terms of timing of outages going forward?

Yeah, so on the order book, we're seeing it fairly broadly, I would say, because of the declines we saw in second quarter, I mean, it's probably more noticeable in some of those grades, nylon, elastomers that I talked about. We’ve seen good recovery in palm, good recovery in [indiscernible]. So I'd say, it's pretty broad across the different grades that we make in the order book and then also pretty spread between the regions at this point.

Yeah. On turnarounds, Laurence, we're doing that work right now on kind of planting that up across the corporation as we do turnaround planning and we’ll provide more insight into that probably in October.

Our next question comes from Ghansham Panjabi with Robert W. Baird.

Thank you. Good morning. And Lori, congratulations again on your new role.

Thank you.

I guess going back to your EPS guidance iteration for ‘19, and sort of the embedded expectation for improved demand fundamentals as per your comps in the press release, are you basically assuming that the inventory destocking, the pressure in the first half is now behind you? Or are you assuming any sort of acceleration in end market volumes, including in the EM segment?

Yeah. So that assumption is, we are assuming that de-stocking is pretty much behind us. Now, we're not assuming any re-stocking if you will. We're really assuming a return to normal demand in the third and fourth quarter and some assumption around not the amount of seasonality in fourth quarter we usually see for destocking, because we believe the de-stocking has already occurred.

And then just in terms of some of the supply chains for markets such as electronics, perhaps moving away from China into other parts of the world, including Southeast Asia, at least directionally, how are you sort of balancing your focus on expanding your VM footprint in China? Would you call that in your prepared comments, versus some of the other regions across Southeast Asia more broadly?

Yeah, so we are very focused on expanding [Technical Difficulty] China, and not just our sales. I mean, I think if you go back historically, most of our EM business in China really started with following big auto, if you will, into China and people that we supplied in other regions of the world, whether it be Europe or the US, basically supplying the same materials into China. And so it's very much on exporting material from the US, exporting from Europe into China. So if you look at it, the large percentage of our EM materials, in fact, quite the majority are not just produced, but also compounded outside of Asia, and then imported, into Asia and into China. That worked when we were doing a lot of auto and things that had long lead times and things that had pretty long life. But if you look at our business now and especially as you go into consumer and electronics and things that maybe change every six months to a year, it's just not a supply chain that can meet our customer demand to get products more quickly, development more quickly. So we are already -- have a couple of projects going in this year to add compounding line in China. And our future capital program over the next few years is focusing on adding poly as well as additional compounding in China really to shorten the supply chain to meet the needs of our current customers in China and the rest of Asia.

Our next question comes from John McNulty with BMO Capital Markets.

Lori, in your prepared remarks, you had highlighted the ability to accelerate some of the actions around cost cutting. Can you quantify or give us a magnitude as to what you can pull forward to 2019 this year?

Yeah, so we pulled forward about 60 million, let's call it, of capital projects, capital thin. So, to give you an example, these are things like retrofitting and refurbishing natural gas boilers to get better energy efficiency at plants. I mean, these are things that, we won't necessarily see the payout this year, but we'll see the payout next year and the years that follow. But to give you an idea on productivity, the combination of capital projects and other productivity, where we had been doing a run rate of about 100 million a year on productivity, that number for this year will be between 150 to 200. So we've been able to pull in, call it 50 million to 100 million on a full year basis now, obviously, not all was implemented January 1, so we won't get all of it this year, but, call it 50 million to 100 million.

And then with regard to EM, I guess, how much or what percent roughly of your products can be kind of swapped out quickly, if there is competition around pricing, because it does sound like that may have been a little bit of an issue. And then how much of it’s really kind of specked in [ph] and it's really tough to displace around random price cuts or lapses in discipline.

Yeah, I'm not sure I know the exact numbers. I’ll ask Scott to back me up here, but right now, I would say, it's probably, a third of it’s really very sticky, I mean very, very hard, a third of it is specked in, but probably others could be or either already specked in and could be and then a third of it is more, what I'll call, me too kind of product, which is easier for people to come in and out of based on price.

Yeah, I think that's exactly right. John, we're – I mean, about a third of the business is a little bit more transactional, it's still an engineered solution. So it's not something that changes, I mean, from one day to the next. But it can be switched out. The reality of it too, is, we can also switch out between polymers. So that's an opportunity for us as well, depending on, where various raw materials are and given the breadth of our portfolio now, and the fact that we have over 20 different polymer families that we can go into, it just gives us a lot more flexibility in this market, depending on where raw materials are in the more transactional spaces. But it continues to be important for us as we build a project pipeline and really start to try to put more focus on that specked in, sticky business that Lori talked about.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

A question on the Acetyl’s industry. As we look at some of the trends, it seems to us that there's a relatively large number of outages across the industry in recent months, recent quarters. My question is, do you agree with that? And if so, do you have a sense for how much or how many of these outages are maintenance related among your competitors versus, caused by economic reasons, with market prices, thinking, do you see competitors throttling back simply because, they go cash negative, for example?

It's always a little bit hard to say, but let me ask Todd to follow up my comment. We know in China that some capacity has been intentionally shut down due to the combination of demand and pricing. Second quarter is traditionally a fairly heavy turnaround quarter as well. So, certainly in the US and in Asia, we see some taken out. Now, having to run operations for 35 years, I can tell you, people make a lot of decisions around extending maintenance outages and doing them at a slower pace and things when economics are like they are now. So, it's always a little bit unclear about how much is economic versus how much is maintenance. But certainly we've seen both. Todd, you may have more specific.

Yeah, Kevin, it's a good question. And to Lori's point is, it's hard to know the exact figure. But if we were to try and track utilization rates, with that, demand dropped sequentially by over 10% in acetic acid Q1 to Q2, we believe that would have pulled utilization rates down on a global basis to just under 80%, so call it around 79%, with China actually dipping under 70% utilization rate. So on the heels of that, to your question, to your point, we do believe kind of intentional curtailment occurred late in Q2, we would call a run rate typically around 300,000 tons of sort of normal outages, we think that that might have doubled, if you kind of ramp it up and factor all that in, it's, again, hard to be absolutely precise here. But there had to have been some intentional action, we certainly do our part with our own network. And that's what we do to take care of our customers and also to maximize value for shareholders all the time. So, there were some curtailments indeed and as we go into Q3, that's important to track and watch and really sets the tone for improvement as we go into the second half of the year. But demand is critically important. We've got to focus on demand conditions and starting to see that that industrial space, particularly in China, starting to recover and that will help a lot, really all of our businesses.

And then as a follow up, again, sticking with Acetyls, what are your latest thoughts on rationalization of Celanese’s capacity in Asia? Do you need to get through IMO 2020 and really see how the fuel markets react in Singapore?

Yeah, no, that's exactly right. I mean, we've announced our intention to do an acetic gas reconfiguration. We are still progressing with that project, but ultimately the decision, it is based on productivity by the way, it is based about utilizing lower raw material costs in the US Gulf Coast and taking capacity out of Asia. But that decision of where to take capacity at Asia will depend on exactly what you said, where do we end up with bunker fuel pricing, what does that mean for Singapore capacity? Where does coal pricing go? What does that mean for Nanjing margins? And we'll make that decision at that time, based upon where we are on both of those.

Our next question comes from Arun Viswanathan from RBC Capital Markets.

I just wanted to go back to the guidance for both Q3 and Q4, I guess looking at Q3, between Q1 and Q2, would put it maybe at 250. And then, your statement is in the past to the 1050. So that would probably be around $3 [ph]. Just, I just want to understand that path a little bit more. I guess, the mechanics would be both Acetyls and EM going up and margins and price and volume, where you see the greatest confidence in that path? Is it in EM or Acetyls and where do you see the risk factors as well?

Yeah. So, the thing we’ve said, we really feel confident in our ability to continue to deliver Acetyls in the 200 range. Clearly, if we see firming in acetic acid pricing, as we've had some indications, if that’s sustained, that could be further upside for Acetyl. And for all the reasons we discussed earlier, around de-stocking, et cetera, we expect to see recovery in engineered materials, as we go forward through the end of the year. And then of course, since we're talking earnings per share, we also have the impact of the share buyback and seeing kind of the full year impact of that on the numbers.

And, do you also expect to update your longer term targets that you provided last year for ’18 through ‘20 at some point?

Yeah, so we're working out through a strategy refresh, we’ll be working through that through the end of the year, clearly, part of that will be to look at 2020 again, and kind of relook at our view for 2020. So hopefully, in the October timeframe, we'll have that certainly, as we work through the strategy into the end of the year, we’ll have a view of 2020 as well as the out years beyond that. Yeah.

Our next question comes from Alex Yefremov with Nomura.

In engineered materials, how should we think about your margin sustainability? Was the level of margins for wholly owned business in the first half representative of what you could see in the second half?

Look, I think, for all the reasons we described, I think we expect second half to be stronger for engineered materials than it was for first half. I think certainly for our acquired businesses, we expect further strengthening in those business models and the delivery against the models for those going forward as well as the general improvement with the market conditions, with not anticipating further destocking. So I think for our own businesses, as well as for our affiliates, but especially for our own businesses, we expect a stronger second half than first half.

Yeah, and Alexi just, typically volumes are strongest in Asia in Q4, margins are a little bit lower there versus the Western Hemisphere, just with Chinese New Year in Q1, kind of moving into that timeframe. So typically, our Q4 margins are a little bit lower. So that would be something to keep in mind as well.

As a follow up, you guided third quarter between first, somewhere between first and second quarter, should we think about that guidance as sort of the midpoint, or are you kind of closer to the first quarter level or the second quarter level in your thinking about 3Q?

Alexi, I think, we're still fairly early as we start the quarter. And so, I think it can really be how demand materializes. I think there has been some pretty public announcements from some of that, for example, automakers taking some or shut downs. But, we do expect to kind of more or less destocking coming to an end as we talked about. So, it's in that range and, as we work our way through the quarter, we’ll have a better idea on where we finish, but it's somewhere in that range.

Our next question comes from Jim Sheehan with SunTrust Robinson.

Share buybacks were pretty robust in the quarter, are you still targeting around a 7% share count reduction for the year? It does seem like you're on track to do even more possibly.

Yeah, Jim, we've been very open about the fact we're going to be opportunistic with share buybacks. We expect this year to be in the range of where we were in 2018. We did 800 million in 2018 and we expect to be in that general range, with finishing the first half at 500 million, in the last 12 months, we bought back about 9% of the outstanding share.

And on the full year outlook, $10.50, you're assuming an acceleration of sorts in the fourth quarter. If you don't see that uptick, what kind of downside do you see for full year 2019?

Yeah, so if we were to see market conditions continue similar to the first half, then we would expect our earnings per share to be down 3% to 5%.

Bob, we’ll make the next question our final question.

Our last question comes from Matthew Blair with Tudor, Pickering, Holt.

Could you talk about how the month of June performed relative to the entire second quarter for both Acetyl Chain and engineered materials? It kind of sounds like maybe June was the strongest month of the quarter in EM, but potentially one of the weakest month in Acetyl Chain? Is that the right way to think about it?

Yeah, so let me talk about EM. So, typically the last month of the quarter is the strongest quarter for EM. That's just typical. So just the way people run their businesses. So definitely, I think June was, actually probably not our strongest month in the second quarter, but it was a good quarter for us in June. Interestingly enough, we actually saw an increase in auto in China in June, the first increase in sales, in terms of auto sales that's occurred for, since May of last year in China. We don't necessarily think that’s sustainable because it was faced with very heavy discounting going on in China to move vehicles that won't meet the new air emission standards that are going into place. So, June was a bit of an interesting month. So, some areas of strength, some areas of weakness, I’d say for EM, not, a good month for the end of -- a good month, but not atypical for the end of the quarter. I think in Acetyls, I don't know that it was significantly different. I can ask Todd to comment, I don't actually think it was particularly strong or weak as comparison to the rest of the quarter. Todd, do you have any?

No. That's good. I think that's right. I mean, the middle of month was probably the lowest of the three, but not to your point, pretty balanced overall.

And then Todd, could you talk about the Chinese VAM market so far in Q3. It looks like pricing might have come off quite a bit already this quarter. There's been some reports of economic run cuts from some of the major producers, including Celanese, do you have any more color there.

Well, again, similar to the comments from before, with respect to our operational activity, so, we will flex our unit, as we see the match with customer needs, customer demand, cost, profitability. So we'll do that in all units around the world. That flexibility is important for us. So I would not characterize VAM China as declining at this point. I think it's been fairly healthy as we go Q2 to Q3, more to come and certainly we got to watch the development over the course of the quarter. But no, I think that was a little too severe of a characterization in terms of the Q to Q drop. So, we're working hard to deliver the quarter in Q3 as we outlined before. So, the one thing we do have to navigate through, we do have a turnaround in Q3 in Frankfurt on VAM, so we've got probably a 10 million headwind there that we've got to work around, but that's probably the one thing from an operational perspective we've got to work through.

Ladies and gentlemen, we’ve reached the end of the question and answer session. At this time, I would like to turn the call back to Chuck Kyrish for closing comments.

Thanks, Rob. Certainly, we would like to thank everyone for listening in today and the good questions. As usual, we’re around after the call to address other questions that you have and Rob, with that, you can close this out.

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