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Celanese Corp  (NYSE:CE)
Q1 2019 Earnings Call
April 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Celanese First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (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.

Chuck Kyrish -- Vice President, Investor Relations and Treasurer

Thanks, Rob. Welcome to the Celanese Corporation first quarter 2019 earnings conference call. My name is Chuck Kyrish, Vice President, Investor Relations and Treasurer. With me today are Mark Rohr, Chairman and Chief Executive Officer; Scott Richardson, Chief Financial Officer; and Todd Elliott, Senior Vice President, Acetyl Chain. Celanese Corporation distributed its first quarter 2019 earnings release via Business Wire and posted a slide presentation and prepared remarks about the quarter in the Investor Relations section of our website, yesterday, after market closed.

Today's presentation will include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found on Slide 2 of the slide presentation under important information. We will also discuss non-GAAP financial measures today. You can find definitions and other important information and reconciliations to the comparable GAAP measures on our website in the Investor Relations section. Form 8-K reports containing all these materials are also available on the SEC's EDGAR system and our website. Because we published our prepared comments yesterday, we will now open the line directly for your questions.

Questions and Answers:

Operator

Thank you. At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from John Roberts with UBS. Please proceed with your question.

John Roberts -- UBS -- Analyst

Thank you. In Engineered Materials the affiliates underperformed the wholly owned operations. There's obviously some big regional differences between wholly owned and affiliates. But could you remind us with some of the application in plastic mix differences between the two?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yes, John. This is Mark. I'll start that maybe -- maybe Scott Richardson cold add some comments. But we did see our affiliates struggle a bit in the quarter. I think, the real issue there is that, if I can say this, they don't have the product breadth or the global reach that we do, selling primarily into China and selling into limited application. So we continue to work with them to see if we can help them improve that performance.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah, John, just to add a little bit more color, if we look then on year-over-year basis, obviously, the entire decline in the equity earnings for Engineered Materials was due to our poly plastics affiliate and really is, as Mark said largely related to the demand in China.

John Roberts -- UBS -- Analyst

And then, can you remind us how much you paid for the Linde syngas unit or is that going to be in the cash flow statement when the Q comes out?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, it is. It's lumped together there, John. We haven't said exactly what that amount was. It will be in the cash flow statement with our Next Polymers acquisition as well, is a very low capital, kind of optionality type investment that we made, which we commented on last quarter.

John Roberts -- UBS -- Analyst

Okay. Thank you.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thanks, John.

Operator

The next question comes from Mike Sison with KeyBanc Capital Markets. Please proceed with your question.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Hey, guys.

Mark C. Rohr -- Chairman and Chief Executive Officer

Hi, Mike.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Nice start to the year. And Mark congrats, and hope you have a lot of fun things lined up going forward. But I guess, I wanted to ask how this role will differ from yours, if any, and in terms of focusing on extracting value for the company and given your portfolio businesses?

Mark C. Rohr -- Chairman and Chief Executive Officer

Sure, Mike. You know, this is pretty well, and the thing about Celanese is that we have a great, great business machine out there that brings a number of opportunities to us and the ability that machine to bring opportunities actually has the capability to overwhelm our internal mechanisms, be it the unit operations, be it the logistic systems and processes, ability to innovate as fast as we need to. And I spend a lot of my time on that and I'm sure that Laurie's going to spend a lot of our time working in those areas. We think in many ways it's the next frontier for Celanese to learn how to go from 20,000 of these to 30,000 manage that better, then we do 20,000. It's going to be a big part of us continuing to drive -- drive value going forward. So, I think that's a major area of focus for us.

The second one I would say is that when you look at the opportunities before, as you know, deploying cash continues to be the main focus of -- my main focus and will be hers as well, and we have more and more opportunities surfacing and M&A that are bigger and structurally more complex. And Lori brings a lot of capabilities going through to facilitate that and help that be a reality for Celanese, which would be a big part of unlocking shareholder value. So, I'd say those two things are top of mind, but you'll get a chance to meet her soon and ask the same questions.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Okay. Great. And in terms of your outlook for 2Q, you noted that it should look similar to 1Q. But it does sound like the Acetyl Chain industry happening rates could improve. Now given out as you noted in your prepared remarks and then, and I guess thoughts on energy materials, your outlook still looks for good organic volume growth given project wins and just wondering what maybe headwinds that you see in 2Q that you wouldn't see a normal, say, improvement sequentially?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah. Well, good, I'll start that, and I'm sure that Todd and Scott will add some comments here. But let me -- one of the things that's not really apparent is internally the things that we deal with. So in Q2, we have a number of turnarounds in front of us. Those turnarounds will cost us $25 million, or $30 million, they call it $0.15 to $0.20 of headwinds baked in there. We're expecting raw materials -- probably seeing raw materials in methanol to go up. Those kind of things, and net-net, that will probably whack us for another $10 million. And John asked a great question on affiliates and we see that affiliate number sliding a bit further. So before we even started this quarter, we've got at least $0.25 of unusual headwinds that we didn't have the first quarter of the year are quite strong in the first quarter of the year. So, I think on one hand, it's easy to say, where life will be good you built in this point. I think the first half of this year is going to be a struggle. And I think maintaining numbers in the flat is a push for us. So I certainly wouldn't recommend anyone go higher than that number for the quarter. I just don't see that right now materializing.

If I take a stab at -- quickly, yeah, we're pushing price really hard and we're pushing our mix really hard and the repercussions of that will not be that great as long as business starts to recover. We don't expect a full recovery in EM to start until more than second half of the year as well. You look at that in auto bill projections those things we're still down the second quarter. We should start some rebound going in the third quarter. So our fundamental belief as Mike is that we've got a bit more grant here before we get into the back half of the year where things should be starting to improve, but Todd you'll make some comments on AC this quarter.

Todd Elliot -- Senior Vice President, Acetyl Chain

Yeah. It's not only regarding acetyl, and we actually had a pretty good March, as we wrapped up Q1. Most of our -- almost 40% of our business occurred in March, as we look at that profile. So we ended on a pretty good note as we wrapped up Q1. As we get into second quarter, Mark mentioned that Celanese has turnarounds, but It's pretty typical for the industry to have turnarounds during the second quarter. We've got turnaround in Bay City, Texas already under way on VAM, same thing in Nanjing, China on VAM we've got about a week -- a little more than a week, in Frankfurt on VAM as well. So that'll present a headwind we've got to navigate around. We've got a fantastic network to do that with.

I think a bigger issue right now is just how China will unfold from a demand perspective as the quarter materializes. It's a little bit of a slow start in April. There have been a series of safety checks and audits following its provision in Yancheng in Jiangsu province at the end of March, that's put, probably appropriately so, a damper on operations throughout their province. So that's affected some of the downstream demand to start the quarter. So we got to see how that unfolds, but we'll certainly activate our network around these things and try to deliver the quarter kind of in line with Q1.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thanks, Mike.

Operator

Our next question comes from Bob Koort with Goldman Sachs. Please proceed with your question.

Robert Koort -- Goldman Sachs -- Analyst

Thanks. Mark and Todd, you guys have talked in the past about maybe some of your competitive -- competitors in China being subject to some challenges with their environmental or economic profile et cetera. In light of the recent developments in China and maybe a little bit more discipline and enforcement does this pace in your expectation of seeing some capacity out in China and maybe tightening operating rates even sooner and for longer?

Mark C. Rohr -- Chairman and Chief Executive Officer

And again, I'll start this and Todd maybe have got some color around some of the closures and stuff that comes from industrial parks. But about the movement in China is fundamentally one in my personal view is of driving inflation. And if you think about that, the economy needs higher pricing to get a decent return on the over investments they've made for a long period of time. So when I kind of worked through that, myself what I see them doing is putting pressure on the 150,000 or so state-run-enterprises there to continue to lift those earnings there. So that means environmental restrictions are going in, that means safety restrictions and you've seen those sort of occur episodically. So we've gone through a period of safety events it seems like every six months and nine months and they continue to ratchet up, the impact of that and they're directing now. We are very public about the number of closures of chemical parks that are going to occur directly with that they will impact some of our competitors we think. But Todd do you want to carry on with that.

Todd Elliot -- Senior Vice President, Acetyl Chain

Yeah, I mean, just a specific follow up on this, the situation in Jiangsu. So remember before we talked about other provinces going through steps to examine environmental policy that continues, but in Jiangsu, we had not yet seen anything specifically around park policy. So what we're hearing have not see anything published yet, but we're hearing that Jiangsu will reduce the number of chemical parks from 49 down to 20, starting sometime in 2020 forward. How that ultimately is laid out and executed and started it remains to be same and the specifics remain to be same. But that's a significant development, a key set of step following this tragedy in Jiangsu. So that's probably the most impactful in our space. We've got to watch that. So think about where parks are near the Yangtze River or close to population centers and that gets more specific in terms of details we'll share that.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. And the only thing, I'd add to that Bob is, yes, it impacts our competitors, but it also can impact our customers too. And so there is kind of I would say a near-term demand impact of -- on our customers as well as we see these audits and scrutiny continuing to ramp up.

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah. Just to follow that. So the specific kind of watch out downstream, MCAA, monochloroacetic acid, acetate esters, pharmaceutical intermediates kind of whole host of downstream applications are slow as these safety checks unfold and inventory levels are brought down probably the one bright spot would be terephthalic acid over to PET. That's held up pretty stronger in this period. But to Scott's point that, that's put a damper on April, but we'll see how that unfolds here as we get into May and June.

Robert Koort -- Goldman Sachs -- Analyst

Can I ask an EM question, Mark it seemed like maybe over the last few quarters you guys have been working hard on getting your price to offset raw materials. And I suspect toward the end of last year, when oil went down maybe some of your customers not only were destocking from macro fears and trying to tighten up their inventories, but also maybe hoping they'd see some relief on price oil. We've had oil rally now. I wonder if you give us a sense of where you see customer inventories destocking, restocking or ability to defer purchases in light of volatility in pricing?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, there was -- you call that right, Bob. There was definitely destocking going on as people wanted to had a view generally that prices will not come down and of course we rallied in the right kind of way to continue to drop higher prices through that period of time. So we're now in that kind of aftermath of that and waiting for a fundamental demand to pick up, which it seems to be in some areas, but again it's a bit too early to tell with that. As it relates to pricing Bob, what we've really done is, yeah, generally, you always make sure you work hard to cover raws. Really, what we've done is went out and starting last year did just had a really hard look at where we were adding the most value and where we felt we were impacting customers in the most important way. We want to make sure that we're getting -- our shareholders getting the right compensation for that. So we were very direct in -- with pricing into those areas where we felt that the values were being brought by Celanese and (inaudible) our applications and the molecules we had. So that approach is still ongoing and we don't intend to move away from that. You've asked me in the past, do we lose volume we do that? The answer is, sure, but we're really looking at a way to drop money. So everything that we do relative to pricing and/or if we elect not to participate on volume is a thoughtful process we go through to try to maximize the value back to our shareholders.

Robert Koort -- Goldman Sachs -- Analyst

Terrific. Thank you.

Mark C. Rohr -- Chairman and Chief Executive Officer

Great. Thank you.

Operator

Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.

David Begleiter -- Deutsche Bank Research -- Analyst

Thank you. Good morning, and nice quarter.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thanks, David.

David Begleiter -- Deutsche Bank Research -- Analyst

Mark, would you expect EM volumes to be up year-over-year in Q2?

Mark C. Rohr -- Chairman and Chief Executive Officer

Oh, jeez, I don't know. Scott, you have a view on that? I don't know if that -- I don't watch it.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah, I think we're going to be flattish, David, right now. I mean, we're still working as Mark just talked about. We're still working the price equation very hard. The one thing that is going to change probably slightly from Q1 and Q2 is, we'll quite have a little less destocking that occurs. I mean, it takes a good six months or so. When oil fell as hard as it did for that to kind of work its way through the value chain. And while our volumes were down year-over-year, and in the 3% range, a lot of our customers that we've talked to were kind of in -- down, more in terms of 10% to 15% rage. And we were able to offset that largely through the new project winds that we had and started to flow through in the quarter. So, I would say at this point we're kind of looking at flattish.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Okay.

Mark C. Rohr -- Chairman and Chief Executive Officer

Yes, the good wildcard -- the big wildcard at least from the discussions I'm involved in daily on this, really is China. China, if you look at projections in China, there was the view that in this quarter they'll start digging out of the hole that all those in China. And start that recovery down mid teens, sort of number in the first quarter, down less the second quarter and then actually be positive the back half of the year end up down 3% to 4%. So that, that has got to start happening. If that starts happening we're in good shape. Let's say, it doesn't happen then you may see a little volume weakness as we go through this quarter.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Got it. And Mark, in your and Scott's comments, you mention actively considering strategic transformational options for your businesses. Has anything changed of late or have discussions picked up recently to drive these comments?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, I think we have, when I look at the bolt on this except that for a minute we're seeing the size of bolt-ons increase and those are opportunities, does that make sense. So we're working a few now that would be in that $30 million to $70 million of EBITDA kind of range to $100 million where we've been doing that deals that have been sub-$30 million in EBITDA. So that's encouraging for us. We continue to work hard to position Celanese to be able to take advantage of transformational opportunities and that's a big personal thrust of mine. So as Lori comes in and takes over the helm as CEO, I'm going to be devoting myself to that along with Lynne Puckett under General Counsel. So we'll be working as hard and we're optimistic that this deal -- this year unfolds and we get into next, there'd be more opportunities come available and we'll work hard to see if we can capture one of those for Celanese.

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Thank you very much.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thank you.

Operator

Our next question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.

Angel Castillo -- Morgan Stanley -- Analyst

Hi, this is Angel Castillo on for Vincent. Just a quick question for me on -- your comments on VAM, in terms of focusing on one VAM with also the Western Hemisphere and your ability to someone in this area. I was just curious because my understanding was that at least on the US incremental down would likely be exported. So just in light of your expansion and again the comments on the Western Hemisphere, I was wondering, if you're able to sell your capacity in the US, or the particular factors that facilitated for you to be able to sell in the region?

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah, let me start that Mark. Yeah, the expansion in Clear Lake, which we brought online in December of last year. So we added 150,000 tons of capacity, that's a key value step among several that were under way with an asset yield. And so the work around that started way before the plant ultimately was commissioned and that was to position our business in the most sort of attractive way as we think about contract mix around the world, good customer growth and mix around the world. So, yes, we did shift some of our profile a little more to the Western Hemisphere following that start-up. So again intentional stuff keep of our value enhancement efforts and that continue into 2019 and beyond.

Angel Castillo -- Morgan Stanley -- Analyst

Great. Thank you. And then in terms of your comments on China, you mentioned the high inventory obviously has continued to -- marked on there, at least on the acetic side. Just curious, your thoughts as to how it will take for the industry to work out of that inventory. And then also just in regards to your comment about slow start to April, I know, if you can give us more color or that just entirely related to the plant explosion or were there other things that you're seeing and that is perhaps causing more of a slow start?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, I mean, there's lots of trade question mark those process. But I think the main event follow the explosion in the subsequent audit and focus on inventory control throughout the country that are really just more specifically in the province of Jiangsu. So that's what we're watching and like I said before we had 40% of our business in Q1 happened in March, we thought we were starting to dig out of the softness at the start of the quarter. So I would point to that, point to derivatives of acetic acid I mentioned three before those are probably the ones to watch and that linked to the inventory bill that we saw in the quarter.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah, so there's still adequate inventory. We think it's working its way down, but it's not down yet, if that was an attribute question. So there's still plenty of -- there still excess material out there. And I think that needs to be resolved the way it will be resolved the China's economy needs to pick up a bit. It will pick up whenever there's a trade agreement in my opinion. So I think, we saw the favorable trade discussion going on March, we saw business pick up the China as a result of that. Then with the explosion and it slows back down again. I think there's still this waiting aspect going on personally going on in China. So hopefully wouldn't get that resolved in the next month or two. I think that would be good as we enter the second half of the year.

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, and the other piece is the turnaround that I mentioned before. So in addition to ours there are multiple industry turnarounds in Q2, so that will play a role in the inventory dynamics as well. We count something like 17 of the 36 acid plants will be in turnaround in Q2. So many of those are in China, but that'll have a -- play a role in the inventory dynamics.

Operator

Our next question comes from P.J. Juvekar with Citi. Please proceed with your question.

P.J. Juvekar -- Citi -- Analyst

Yes. Hi, good morning.

Mark C. Rohr -- Chairman and Chief Executive Officer

Good morning, P.J.

P.J. Juvekar -- Citi -- Analyst

So question on -- my question on acetyls, last quarter you announced rationalization of acidic capacity in Asia. And then you announced expansions in the US of VAM, acid and now methanol. So it seems like you're moving production back to the US, presumably because of the energy advantage here. So is that true and will you be exporting some of that material back to Asia?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, we know that, that's definitely, yeah, that's exactly what we're doing. When you look at the economics of that is pretty profound for us. The assets we have in China, or in Singapore, higher costs than the asset base we have in Europe and not only is that higher costs, if you look at, it's just the strip today for nat gas of five years or six years. We just roll that out. You can see that variability lasting for a very, very long period of time. I just want to sneak in economics of the other day that shows how solar power is actually offsetting the incremental gas being consumed for utilities in the state of Texas. I mean, so we have this low cost energy base here on the US Gulf Coast is pretty phenomenal. And that the moves we're making really are moves to as tight as says it much better than I can, a step result from that base of let's say $800 million to kind of our trough earnings level for this business back up above $1 billion, about $100 million over that locked up in the acetic acid front primarily productivity just associated with that switch from Asia to the US. And then you add on top of that incremental methanol incremental VAM those kind of things. All those contribute toward again without any change in the basic business closing that gap gets you back to $1 billion and of course $1 billion beyond goes from that. So, yeah, that's what we're doing. So most of that material will end up offshore. The demand in US is not really increasing.

P.J. Juvekar -- Citi -- Analyst

Great. Thank you for that. And then post all these expansions in the US, how integrated would acetyls be with your EM business. And how quickly can Scott separate these two businesses, if you decide to take any strategic action on any of the pieces? Thank you.

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, the business are not -- there's organizational integration that has to be separated and there's efficiencies associated with a single instance of SAP and those kind of things that you have to work through with some tax -- things you have to work through. I think once before we talked about the penalty associated with that of being well north of $100 million per year so-called $1 billion of negative net present value. There's been a lot of work that Mr. Richardson has led over the years and we really dramatically dropped that down. Maybe it's $50 million for that. And we'll continue to work that down. But I think we'll get it to a point where should an opportunity arise that would facilitate a value creation step that way, it would be certainly possible without that kind of huge negative consequences that corporations often see when that happens. At the same time, we're seeing investment opportunities and they see we're being very thoughtful with those, every one we're doing is incremental at very, very low cost. But certainly it's getting to that point where it could do something else, we could do something else where that could make sense for that organization and for our shareholders.

P.J. Juvekar -- Citi -- Analyst

Thank you.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. And I mean depending on the deal, P.J., that we do if we got to that point, it's probably kind of a 6-ish month process for us to get something pulled off.

P.J. Juvekar -- Citi -- Analyst

Okay. That's helpful. Thank you.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Great, thank you.

Operator

Our next question comes from Duffy Fischer with Barclays. Please proceed with your question.

Michael Leithead -- Barclays -- Analyst

Hey, guys. It's Mike Leithead on for Duffy this morning. On asset yields, first, I was hoping maybe you could remind us what your backwards integration into methanol would be after the recently announced methanol anesthetic acid expansion? And, second, is it fair to assume with your methanol expansion announced that a potential investment in second methanol unit is off the table right now?

Mark C. Rohr -- Chairman and Chief Executive Officer

Todd, you want?

Todd Elliot -- Senior Vice President, Acetyl Chain

Yes, I'll do one. I'll start and you can add to that.

Mark C. Rohr -- Chairman and Chief Executive Officer

Okay.

Todd Elliot -- Senior Vice President, Acetyl Chain

We've talked about roughly a 50:50 balance make/buy, and that includes as well our affiliate investment in Saudi. But the profile in the Americas is, of course, more heavily weighted toward make as we think about the methanol unit in Clear Lake, (technical difficulty) our derivatives in the Americas. But this will nudge us up a little bit. We started that unit back in '15 with an original design nameplate of about 1.3 million tons, now we're looking at 1.7 million tons once these expansions are finished. So low cost, great returns on capital, also allows us to do some things in support of our integration here in Clear Lake. The acquired carbon monoxide, which we talked about before. We have the expansion around the corner with acetic acid. So all that adds to our configureability options there in Clear Lake.

Mark C. Rohr -- Chairman and Chief Executive Officer

And, Mike, as I would say to is that, as a cross point, we could be full in the United States and we're totally integrated and it would be to our advantage at that point. So there's still room to do that, beyond the 1.7 million tons, down the increment that we've pushed out with this last expansion. So, yeah, we've got great partners in hand with Mitsui. We have other friends in industry, we'd like to do something with it. So we're certainly not -- it's the top thing on our list today, but it's something we continue to evaluate and look at, and we'd be willing to take that step with the unit economics where it really makes sense to our shareholders.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. I mean that's the important point. If we focus on high return investments and for things like methanol, it's got to really make sense from a return perspective. And when we did the plant in Clear Lake a few years ago, just as a reminder, we got 50% of the capacity for less than 50% of the capital, given some of the assets we were bringing there at the site. So, we continue to look for advantageous investments that are going to be really opportunistic for selling.

Michael Leithead -- Barclays -- Analyst

Great. That's helpful. And then, I guess, just following up on the return element, you talked about superior returns in organic -- or sorry inorganic investment for Celanese, I was hoping maybe you could touch on the relative investment opportunity set between the two businesses, EM and asset yields, either in terms of higher returns for either business or just a broader opportunity set for you guys today?

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

No, we've been very clear in both businesses. We really target greater than 20% returns on investments and we don't really look at either one definitely from that perspective and a lot of what we're doing -- in asset yields, we've talked at length about focusing on the opportunities in the Gulf Coast, for incremental investment that really justified with productivity. And then in Engineered Materials, a lot of these are really incremental capital. So we're putting compounding lines in for Engineered Materials. It generates a lot of value that is paying back in a couple of years. So, that's really where we're prioritizing our investments right now. I think we've said we got kind of nine projects or so going right now in Engineered Materials from a capital perspective, all of those are pretty small when you look at each one individually. But as a collective program, it's pretty sizable with, again, a return profile that's better than 20%.

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah. I think the next generation for us too in EM is going to be to restructure our power base to better fit the consumption demands that we see in the future. So, right now, we're very heavily US and European based in our base polymer production and we're seeing continued opportunities in Asia. We see that growth quite dramatically, which we currently satisfy from the US. So we think there's a whole new round of opportunities that are surfacing and will be part of the new three-year plan to think that we talked about. We'll make those investments out there and Todd's just talked about some of these. So we do believe that our investment opportunities are getting greater as we grow this company and I think it's pretty evenly split between the two.

Michael Leithead -- Barclays -- Analyst

Great. Thanks, guys.

Mark C. Rohr -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question.

Jeffrey J. Zekauskas -- JPMorgan -- Analyst

Thanks very much. In Jiangsu, over a longer period of time, do you worry that environmental constraints may either close your capacity or limit your capacity in some way or limit the capacity of your suppliers, your customers. Do you view these environmental efforts over a longer period of time as a clear positive or a clear negative or neutral, you can tell for your business there?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, Jeff, that's a great question, yes. So when we -- first off we're in the Nanjing Park and it's considered one of the top two or three parks, maybe the fourth most favorable park in the entire country. So it's a very good park, it's well managed. The role that companies like Celanese play there and BASF and others as we partner with the politicians really to support their move to become more focused on safety, environmental stewardship. So we play a key role and really helping them put forth the kind of regulations and protocols we have as a corporation and the other multinationals do on that park and on organizations that work there.

So they -- that relationship is really positive. So could it end appropriately for a park like that? I suppose it could. But what we do is pretty unique and I have a hard time believing that anytime in the near future it represents moves to improve China really represent a threat to that park or a real threat to our asset base there. When you get out beyond let's say a park like a big industrial park like chemical park like Nanjing, you get to a lot of industrial parks. Industrial parks don't run that way. They have lots of mom-and-pop or smaller operations there and those are the ones that seem to be feeling the most pressure now. So I think it's really more customers that could be impacted as time goes on, in every going. And right now we don't have a way really to assess that. But it's something we're going to keep our eyes on.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. Jeff when we started planning for that site 15 years ago we really tried to build it both from our own construction belts or upstream gasification suppliers construction with an eye toward the future. So if China had an environmental regulation very similar to what we see in the western hemisphere that's what we built for. And so it's not to say that to Mark's point that you couldn't see some crack down possibly in the future but we really did built that plant with an eye for the future.

Jeffrey J. Zekauskas -- JPMorgan -- Analyst

Okay, great. And in Engineered Materials, was there a few percentage points of volume growth from acquisitions in the quarter year-over-year? I don't know 4%, 3% kind of sets?

Mark C. Rohr -- Chairman and Chief Executive Officer

Of course, there was a little bit -- there was a little bit from Next that rolled this quarter versus last quarter. Year-over-year, Scott, I'm looking at...

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah, it was pretty small, Jeff, and it was -- it's more like 1% to 2% is probably in there. So as I talked about earlier, year-over-year when you look at on a straight volume basis, it was 3%. What we're hearing from our customers and their demand is down considerably more than that. So, you know, if you pull that acquisition roll that through there is more kind of base-to-base is 4% to 5% down. We feel pretty good about that given the environment that we were in that we were able to offset that with new projects.

Jeffrey J. Zekauskas -- JPMorgan -- Analyst

Okay, great. Thank you so much.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thanks.

Operator

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

Ghansham Panjabi -- Robert W. Baird -- Analyst

Thank you. Hi, everyone. Good morning.

Mark C. Rohr -- Chairman and Chief Executive Officer

Good morning.

Ghansham Panjabi -- Robert W. Baird -- Analyst

Good morning. I guess first off -- on going back to the first quarter results sort of relative to your initial guidance at the time of the 4Q earnings report. Well, what truly surprised you the upside in the first quarter? And then related to that, Mark in your prepared comments you mentioned confidence and an improvement in China and just broader underlying demand. Is that embedded in your reiteration of guidance for 2019, I am just trying to clarify?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah. So what I would say is that, we guided pretty flat. We were starting the year very, very slowly. And so we were focused solely on what we could bring to the table. And so what I was pleased about is that we brought a lot to the table through incremental productivity through incremental sales, through mix shift that occurred in our portfolio and then sort of work went into that. And you add on profitability at a stronger March than we really kind of anticipate. So that kind of lifted us up a bit about over that initial kind of view we had. Now as we went into this quarter and I've just outlined I think you heard there's probably $0.25 of headwinds today that we didn't have last quarter that are real. So we're starting out not at $2.60. We're starting out more like $2.30-ish. I mean, is that kind of -- that kind of spot and we've got a build back into that. What my optimism for the year is centered upon is that I really do believe that China is going to improve as we get into this year and end this year. I do believe it almost seems like the machine just trying to get started only for something and knock it off course. And we know the Chinese people well. We know that region well, our customers well. So there's a desire for them to do better. And my belief is, as you get into the back half of this year that we'll see that machine come alive and start to have more of a foundation, which is not only good for us, but it's good for our affiliates and things like that.

Ghansham Panjabi -- Robert W. Baird -- Analyst

Great. Thank you. And for my second question kind of going back to the EM segment volumes down 3% in the first quarter. Obviously comparisons are much more difficult given years of outsized growth and the choppiness in the macro. But the trend line is nonetheless weaker over the past few quarters. I guess, going back to the 4,000 projects guidance for this year, what sort of visibility do you have toward that number that gives you confidence in being able to hit that? Thanks so much.

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, I think there remains this overall press to differentiate. Customers very much want to do new things and serve markets right away. And so what you actually see is you see that trend increasing. The flip side of that is that the numbers tend to start weighing down to be a little bit smaller in size, because the people are less confident in that. So we feel very good about the 4,000, we feel very good about that contribution, and that is not a function of us thinking -- business itself it's going to get better, the market's going to get better, just the need for customers to differentiate themselves versus our competition.

Ghansham Panjabi -- Robert W. Baird -- Analyst

Thank you, Mark.

Mark C. Rohr -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.

Nick Cecero -- Jefferies -- Analyst

Hi. This is Nick Cecero on for Laurence. So for Engineered Materials, you mentioned that the projects used in battery separators is expected to double again in 2019. I'm just wondering if we should expect the current cadence of growth to continue over the next three to five years and then maybe you can just size the potential market opportunity here?

Mark C. Rohr -- Chairman and Chief Executive Officer

Scott, do you want to?

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. So we do see that trend continuing, that growth trajectory is extremely strong in that end use. It's probably one of the really good bright spots for us in China. We are in the process of finalizing the expansion of our GUR ultrahigh molecular weight polyethylene unit there in Nanjing, which will help satisfy that demand in the near term, but we're already looking at what is the next wave of investments, because we don't see that growth trajectory changing given the focus around electric vehicles in China and the batteries playing a critical role in that growth.

Nick Cecero -- Jefferies -- Analyst

Great. Thank you very much.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thank you.

Operator

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

John McNulty -- BMO Capital Markets -- Analyst

Yeah. Good morning. Thanks for taking my question. In the prepared remarks, you'd pointed to seven project expansions in the EM segment. Can you kind of help us to think about the earnings power tied to them and the cadence at which they may come in over the next couple of years?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, I'd love to John. I don't have that in front of me. So you should think of all these as being small and being incremental, all adding millions -- not tens of millions of dollars to that process all baked into that push we have to grow this thing $100 million per year, which we've been doing in that scenario. So I think it's -- these are small incremental step chains that make us going from the $6.90 up in the $7.70 or so this year we're about -- number turns out to be $7.60 and end up from that into the $8.50, $8.60 next year, it's all part of that.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yes. And it's really what allows us to satisfy the demand growth that we have from the project wins, that we've been very -- talking about in great detail over the last several years. And so I mean the nice point is either $5-ish million type project each one of them plus or minus. So we're not talking a huge capital for each one.

John McNulty -- BMO Capital Markets -- Analyst

Got it. Thanks for the color on that. And then I guess with regard to M&A, you indicated I guess again in the prepared remarks that the pipeline was strong for both businesses. Aside from the syngas unit that you just acquired, I don't really recall a whole lot happening in the Acetyl Chain. I guess how should we be thinking about the opportunities for M&A there and what types of either assets or ventures you might be considering or looking at?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, we think in that arena, there's partnership opportunities that are available to us at least in theory on paper. We have come very close to acquiring businesses that would be derivative wide businesses that would fit our emulsions business well and a portfolio of products we sell there well. There's upstream opportunities there that could involve M&A. So, you need to think of trying to extend that chain laterally and also back integrating that chain.

John McNulty -- BMO Capital Markets -- Analyst

Got it. Thanks very much for the color.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thanks, John.

Operator

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

Kevin McCarthy -- Vertical Research Partners -- Analyst

Yes, good morning. Mark would you comment on the size of your investment to expand methanol at Clear Lake by 25%, as well as, the timing of that project?

Mark C. Rohr -- Chairman and Chief Executive Officer

The timing, that's several years. I think two, two and a half years because you've got to build the next turnaround. We haven't talked about the dollar amount but it's well, well, less than $100 million.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yes. So, Kevin think of the timing similar to the start-up timing with the expanded acetic acid. So there's option -- there's configuration benefits with both of those units starting up about the same time, there's some recapture on the CO2 site and -- hydrogen benefit at the side. So there's all kinds of integration benefits associated with this. And Mark's a market point capital was de minimus and would be funded through the venture itself.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Great. And then I wanted to clarify a comment you made earlier regarding potential costs to separate your businesses at $50 million to $100 million. How did you reduce that cost? And as a clarification is it operational cost or is it inclusive of potential tax effects as well.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

It's sort of all the above. I mean we look at all of the implications of everything from the credit arrangements we have in changing of those arrangements out there, the cost of the SAP systems, now you reconfigure those systems both positive and negative relative to that, people that have joint jobs and how we deal with men and women like that and ways to take care of them. So every aspect of that we've looked at and we've got pretty good that the 100 is absolutely a number of higher than we first started looking at that. We saw ways that we can invest money and improve our ongoing operating efficiency to get that number lower. So our path has been on to productivity to pull that down and we think contemporary number today is closer to 50 for that ongoing impact. And Scott and others are working to even get that lower over time. So that's how we did it. It's not -- there's no magic. There was one one thing, it's hundreds of small things that we just had to go after.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. Thank you very much.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Sure. Thank you.

Operator

Our next question comes from Frank Mitsch with Fermium Research. Please proceed with your question.

Frank Mitsch -- Fermium Research -- Analyst

Hey, good morning, and nice start to the year, gentlemen. In the acetate tow side of the house, the expectation when you offer guidance for the first quarter was that it would be equivalent to the third quarter of last year, which was around $65 million, it came in at $72 million now. I noticed in the slides you talked a little bit about, let's say, these dividends, perhaps, being a little bit larger. Can you talk about that? But you also mentioned that business you believe has returned to a stabilized earnings profile. Can you provide a little more color on what went right there and what should our expectations be for that business?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah. going to quarter-to-quarter, we had -- I mean, a couple of things came in a bit higher than we thought. Price peaked up a little bit. There was just some sort of return to a normalized pricing, so it's pretty flat year-over-year, but it is improvement quarter-to-quarter. We have some energy favorability worth few million bucks in there. Spending was down as part of our productivity initiatives came in. Those things all added up to some pretty good money and on top of that equity earnings came in a bit higher, that was a pop up that you saw there. I mean it will settle back down in that mid-60 kind of range. And we think to round out the year, we have to continue look for ways to add productivity, do more productivity in that arena and we think we'll need to do keep these earnings flat next year. But I don't know if that's enough color for you, but I think the business is performing in the way we thought it would and we expect it to be flat as we end this year, year-over-year.

Frank Mitsch -- Fermium Research -- Analyst

Terrific. Thank you. And just a clarification. Mark, obviously, you've indicated that you thought China was going to improve. And just curious, is a trade deal necessary for you guys to hit that $10.50 number or not?

Mark C. Rohr -- Chairman and Chief Executive Officer

Well, it's a great question. And I want you to please understand that I'm talking, this is a feeling just having got back from there recently. And the team has spent a lot of time over there, but if you look at the data coming out of China, what you see is, you see starts and stops of things. It's not momentum starts to build and something knocks it off course, and momentum starts to build and something knocks it off course. So, I see it as an economy. It's not sliding down. It's already taken that step down. It is trying to recover. And there's not going to be a good reason for us to be down. I mean, if you go there, you see -- I mean, it's a thriving economy still today. A $14 trillion economy if it's going to grow 6%, that's probably twice the economic contribution globally to the world than the US. So to me getting that incremental $800 billion or so coming from incremental growth as Chinese economy to be critical not only for China, but it's also critical for the world. So I do believe that for the world to get better China needs to recover. And I do think to jump start the economy in China the trade deal needs to happen.

Frank Mitsch -- Fermium Research -- Analyst

Very helpful. Thanks Mark.

Mark C. Rohr -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question comes from Jim Sheehan with SunTrust Robinson. Please proceed with your question.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Thanks. Regarding larger scale M&A, is that all -- in EM, is that all in the engineered plastics area or would you consider other kinds of businesses? And then on Acetate Tow, once considered a joint venture there, what's your strategy for enhancing shareholder value from that business?

Mark C. Rohr -- Chairman and Chief Executive Officer

So, yeah, when you look at the bigger deals we are looking at, they tend to be more EM oriented and that's a bit of a balance equation. If you look at AC, we have more control on a growth destiny at AC. And with fewer partners, we have already have a machine and we can -- I like to what the people just who have an investments in. And so they tend to be more EM oriented, that's what I would say there. As regards to AC, we continue to look for ways to try to involve others in that, we think that's the right thing to happen over a long period time. Having said that, that business is directionally starting to improve. And we do believe that we can get through the next year or two with flat economics. We'll see a period of time when that without -- whether we do a deal or not with somebody else, we'll see this business start to get back on course to improve naturally.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yeah. And Jim as we look at deals in Engineered Materials they really are focused on deals in the Engineered thermal plastics space. So other materials are similar materials to what we have today.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Terrific. And how should we think about the earnings left from the 15,000 ton expansion in Nanjing?

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yes, it's a few cents on a full year basis, Jim. It's kind of embedded in the projections that we gave as part of our four year plan last year.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Thank you.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Hey, thanks. Good morning. Just real quickly on the -- with the synergies, it sounds like you cited there was $50 million. Would you like to see that I guess go to break even before any kind of you proceed forward with any kind of action in the JV transaction or separation? Thanks.

Mark C. Rohr -- Chairman and Chief Executive Officer

Arun, you're talking about the pulp business or the AC business?

Arun Viswanathan -- RBC Capital Markets -- Analyst

The AC business.

Mark C. Rohr -- Chairman and Chief Executive Officer

Okay, yes. Well, I -- I'm -- you guys don't like me very much for this comment. But I think you don't make money by just pulling something up, you make money only if you catalyze a unique growth profile. Right now, we have that under way for AC, we're not holding back money for AC. So I think until we started holding back money from a growth point of view, it's the shareholders are getting the full value for that within the portfolio. So, we would see it as part of some catalytic of that. I do believe or if there was a need for a lot more money we go and put in place then you could rationalize, it's the right thing to do to bring in a partner or do something else to try to unlock that shareholder value.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Thanks.

Mark C. Rohr -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question is from Aleksey Yefremov with Nomura. Please proceed with your question.

Matt Skowronski -- Nomura -- Analyst

Hey. This is Matt Skowronski on for Aleksey this morning. I'm just following up to Kevin's question. In the past you mentioned that CapEx in out years to 2020 plus it's going to be around $400 million. Is that still a good number to think about, now that you have these expansion projects going on?

Mark C. Rohr -- Chairman and Chief Executive Officer

No, it's drifting up and I don't know -- I'm looking at Scott. I think we've rolled out a number there. But, we'll update that shortly. I think, clearly the -- if you see the gas expansions in there and that would included, originally we'd say that's in the $400 million. So it will be up a bit.

Matt Skowronski -- Nomura -- Analyst

Understood. Thank you. And then within Engineering Materials, is destocking limited to autos or were there other end markets?

Mark C. Rohr -- Chairman and Chief Executive Officer

Primarily auto.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Yes, Auto and Electronics, probably two biggest where we saw that -- we really didn't see much impact in our medical business and consumer goods is actually held up pretty well also. So it's really mainly cellphones, other electronics and automotives.

Matt Skowronski -- Nomura -- Analyst

Understood. Thank you.

Mark C. Rohr -- Chairman and Chief Executive Officer

Thank you. Rob, the next participant will be our last question.

Operator

Our last question is from Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Hey. Thanks for squeezing me in guys. Just one for me. You mentioned a pretty heavy turnaround schedule in Q2 that also seemed like you had some downtime in Q1. Does this mean that your turnaround schedule for the back half of 2019 is pretty light? And can you provide any numbers around that?

Mark C. Rohr -- Chairman and Chief Executive Officer

Yeah, it's pretty light. We have -- I think we have EM outage plan in the third or fourth quarter as well. But, yeah, we tend to -- like most companies, we tend to do more in the second quarter and so it's pretty normal for us that $30 million, $40 million kind of hit in the quarter.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Thank you.

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Sure.

Operator

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

Chuck Kyrish -- Vice President, Investor Relations and Treasurer

We thank you for your questions and for listening in today. Certainly, we're available after the call to address any further that you have. And that I'll wraps this up. Rob, you can close this out.

Operator

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

Duration: 54 minutes

Call participants:

Chuck Kyrish -- Vice President, Investor Relations and Treasurer

John Roberts -- UBS -- Analyst

Mark C. Rohr -- Chairman and Chief Executive Officer

Scott A. Richardson -- Senior Vice President and Chief Financial Officer

Michael J. Sison -- KeyBanc Capital Markets -- Analyst

Todd Elliot -- Senior Vice President, Acetyl Chain

Robert Koort -- Goldman Sachs -- Analyst

David Begleiter -- Deutsche Bank Research -- Analyst

Angel Castillo -- Morgan Stanley -- Analyst

P.J. Juvekar -- Citi -- Analyst

Michael Leithead -- Barclays -- Analyst

Jeffrey J. Zekauskas -- JPMorgan -- Analyst

Ghansham Panjabi -- Robert W. Baird -- Analyst

Nick Cecero -- Jefferies -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

Frank Mitsch -- Fermium Research -- Analyst

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Matt Skowronski -- Nomura -- Analyst

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

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