Celanese Corporation Q1 FY2026 earnings call

• Discussed Clear Lake operating rates adjustment and focus on downstream acetic acid opportunities. - Talked about scenario planning for supply chain normalization and prudence in guiding the second half. - Addressed EM price increase cadence and acetyl business price dynamics. - Highlighted asset deals team actions in response to market changes. - Announced nylon strategic initiatives with cost savings target. - Discussed working capital considerations.

• Uncertainty in supply chain normalization timeline. - Price increases flowing through in Q2 with heavier impact in Q3. - Considered seasonality and volume moderation in Q3 for acetyls.

• Potential demand disruption due to inflation. - Uncertainty in M&A market affecting divestiture plans. - Concerns about demand destruction in certain regions impacting pricing.

Q: Some of your peers have talked about nine to 12 months until supply chains normalize post the end to the conflict. It looks like you're targeting maybe a shorter timeline, can you talk to that timeline you're looking at?

A: Yeah, thanks, David. Look, it's about scenario planning, and there's a lot of different scenarios that could play out. And as you kind of look at you know, the assumptions that we've made here that, you know, we start to things begin to unwind. And that begin of that unwinding, it just depends on what that kind of decline curve looks like in terms of volume and price based upon, you know, the speed of that unwinding. And I think that is uncertain. right now, but we felt like it was important to be prudent in terms of how things could play out because there's also a potential offset to demand with feedstock prices high and where they are, you know, there could be an impact to underlying demand. And so, you know, we kind of put all those things out there and again, you know, felt like it was the prudent, you know, guide for the second half. But also, as I said earlier, you know, look, we are ready and our team has done a great job of responding to the environment and here in the second quarter. And if we see that environment continue, then we'll go capture that upside.

Q: And just on EM, you've announced some price increases. So what's the cadence of price costs as we go through Q2? Are you ahead, behind, or neutral? And how's it going to the back half of the year?

A: Yeah, we're starting to get some of that price flowing through, you know, as it is a kind of a slow uptick here in the second quarter. But it's important that, you know, we really begin to achieve that because the cost, while flowing through a little bit here in Q2, is going to hit us heavier. in Q3. And I think we should see that, you know, hopefully fully materialize in the P&L in the third quarter. And so it's important, you know, as we exit Q2 that we're achieving the maximum amount of that price. So we're certainly on the trajectory there. But, you know, the next six weeks here as we finish the quarter, it would be really important in that equation.

Q: And actually, David's question leads nicely into what I wanted to ask about, and that's on the acetyl side of things. I mean, as you look at the second quarter, my assumption, and please correct me and expand upon it, is that you're raising price in the acetyls upstream and downstream, and the expectation would be that you're going to end the second quarter at a higher price level than what the 2Q average would be such that we're going to start 3Q at a higher level. I mean, so a couple of questions. Is that how you're thinking about it as well? And, you know, based on your prudent guidance, are you factoring some measure of price degradation in the third quarter or how? How do you think about the price balance on acetyls and how we're going to enter the second half?

A: Yeah, Frank, I don't know on a global basis that that necessarily is the right assumption. We've already seen pricing in China start – to moderate from where it was at the beginning of April. So actually, I don't think on a global basis that's actually kind of the case of where things will be. I think we'll probably see that price in Asia stay where it is or possibly moderate a little more as we work our way through the quarter. In the Western Hemisphere, where pricing is now is probably similar to where it will be at the end of the quarter, you know, depending on where, you know, competitive dynamics are. So I actually think, you know, where we were in April was probably the higher watermark, just as we look at the cadence today. I understand what you're saying about China. My understanding is that some of that was also demand destruction, so they actually don't have – you can't sell the products downstream, at least here in the near term. But in the Western world, would you assume that in North America that you would give back something on price in the third quarter? I think it's TBD, Frank. I think volume, we've got a moderation of margins in price as you work your way through the third quarter. Just from a normal seasonality standpoint, Q2 tends to be the highest quarter from a volumetric perspective, typically in acetyl. So you would normally have you know, some volume, you know, come off in Q3 from a seasonality perspective through the holiday period. And so, you know, we've kind of factored, you know, some of that into the assumptions for Q3.

Q: You know, just wanted to sort of dig a little deeper about this sort of uneven sort of pricing dynamic regionally that you guys talked about within a CTEK. I mean, my understanding is that, you know, as I take a look at the raw material side of things, you know, just in the Middle East alone, there seems to be 26 to 27 million tons of methanol capacity that is offline, right? And obviously, methanol pricing across the globe has risen quite rapidly, including China, right? So I'm just trying to understand this recent dip that we've seen, particularly in Chinese spot acetic pricing. You know, where are the margins there? Are operating rates still relatively elevated? Just trying to sort of make sense of this uneven sort of pricing environment by region.

A: Yeah, Hasan, I think that's a good time to really call out the decisive actions that our team in asset deals has taken around the world in the quarter. They responded really quickly at the end of Q1 in order to take advantage of, you know, the margins started to move up there in China in particular. And that's really the only place that we saw, you know, benefit from some of the supply chain disruption in Q1. But they were really working to position for the second quarter. And as we kind of look at it, your margins were highest probably here in Q2 in China at the very beginning of the quarter, and they've come off. But we're certainly not at margin levels where they were at the beginning of 2026. So you're kind of in between where they were at the beginning of April and where they were when we started um the year and so it's it's somewhere in that that zone um you know we did see you know china was in holiday uh last week um came back uh today uh pricing did move up a little bit so we're gonna have to kind of see where how that holds and where demand is but demand is held relatively steady from what we can tell um you know through the value chain uh in china Q: And as a follow-up, can you just give us an update on where you guys stand with regards to any further potential divestitures?

A: Yeah, Hasan. Yeah, we continue to work that, you know, very aggressively. And I would say, you know, the current events haven't helped the M&A market. But regardless, we do feel good about signing another deal this year. It could be a smaller deal, but we're working hard to get one signed. We have not baked in any assumption for cash proceeds from a deal, just from the uncertainty of, you know, kind of signing versus closing.

Q: Scott, can you speak to your mix of contract versus spot business within Acetyls on a pre-war basis and speak to how that is evolving, if it's changing at all post-war? For example, if we consider VAM and some of the parabolic price action there, is your philosophy to sort of strike while the iron is hot and take advantage of this windfall opportunity, you might say? Or is it to really focus on upgrading your contracts and the terms and the mix, you know, with an eye toward the medium to longer term or some balance of those? Maybe you can just kind of talk through that and how you're thinking about it.

A: Yeah, let me just kind of step back a minute, Kevin. Our team is first focused on being the most reliable supplier in each region, in each product. And I think we've developed a network pretty deliberately for over many, many years that can achieve this and give us flex to be able to respond to what happens and what kind of landscape changes happen. you know, the pricing mechanisms that we have are different in each region, in each product, to be honest. You know, we've got, you know, some formula pricing in certain regions, particularly VAM in the United States that we've talked about. It kind of moves with raw materials, gives us a nice space, gives us cost pass-through. We've got a lot more, you know, contracted business in Asia, but moves with how the market is moving, you know, very quickly. And then we've got blends in the balance of the business in the US and in Europe on different mechanisms. And so this is about being ready in an environment like we are now. And so being able to flex with some extra volume gives us that ability to be that reliable supplier for customers and for new customers that are just coming to Celanese or just coming back to Celanese. And so it is about how do we get that business secured longer term? And we are securing business that we didn't have under agreement. For the second half. And so, you know, as that process works here in the second quarter, you know, give us better clarity on what the third and fourth quarter are going to look like as we are able to utilize this flex capacity that we have.

Q: And then secondly, I want to ask about your new strategic initiatives in nylon that you announced last night in the U.S. and Singapore. I think you're targeting incremental cost savings of $30 million. So maybe you can step through what you're doing there and comment on the cash cost to achieve those savings and the timing of the flow through of the $30 million in coming quarters or years.

A: Yeah, let me hit kind of the philosophy and the strategy around the changes, Kevin, and then I'll turn it to Chuck to talk about some of the details. You know, when it comes to Nylon 6-6, we've been very open about this now for more than a year. And as we said in the past, our value is in the compounding step of the process. And that's not changing here. And in fact, we're enhancing that. our compounding capabilities and our specialty products where we need to, to ensure the reliability of supply to our customers. And we've had a very thoughtful step plan to ensure the short and long-term sustainability of how we get polymer. And so being able to optimize this make versus buy on polymer is critically important And so these announcements around polymer capacity for us is really the next big wave of that commitment to improving the fundamental profitability of the nylon six, six business. And we believe these are the right moves for us right now. Um, you know, I think, you know, as we go forward, you know, we would expect about $30 million of savings. As you mentioned about a third of that will probably hit here in the second half of the year. And I'll turn it to Chuck to talk about other details. Yeah, thanks, Kevin. Yeah, like Scott said, about a third of that 30-minute chart is rolling in this year. Your question on the cash costs, think about that as sort of less than a one-year payback of that 30 million. That's been in our free cash flow forecast this year, so nothing incremental there.

Q: Good morning. Just wanted to flesh out how you're thinking on working capital, how much you think in your base case working capital will be a use of cash for this year. And as you think about this year and next year, is working capital just ebbing and flowing with your expectations around input costs or is there going to be some net drag on EBITDA at some point to work that to reduce your working capital position?

A: Yeah, thanks, Lawrence. You know, let me talk about free cash flow this year and sort of talk about working capital within that. You know, if you look at our midpoint of our earnings guide, that's about a few hundred million of EBITDA growth this year. That will translate into free cash flow, but it is likely that it'll be split between 26 and 27 as it works its way through working capital. Right now, to simplify, we're assuming we collect about half of that increased EBITDA this year and half next year. So that would mean about half of that gets tied up in working capital. I think before that, we were assuming this year, actually, that working capital would be a a source of cash of, say, call it $100 million as we continue to reduce inventory and EM. So maybe working capital in this scenario is closer to flat for the year. And then我想你会随着需求而起伏。但我们确实期望继续从系统中减少库存并在营运资金中产生顺风。Q: Yeah, Chris, let me start and I'll let Chuck fill in the details. Let me hit the second part of your question first. No, we have already moved and we are moving methanol from our plant in the United States over to Europe. So, you know, our POM unit in Europe, you know, either uses source methanol from the market or uses our own cost-based U.S. natural gas-based material. Yeah. And let我谈谈……Q1到Q2的情况，包括周转和一些其他库存。所以在Q1，我们建立了POM库存，对损益表产生了2500万美元的收益。现在在Q2，我们将减少POM库存，但我们将为我们谈论的转型建立一些尼龙。预计Q2对损益表有1000万美元的净吸收冲击，加上约1500万美元的周转费用。如你所知，根据指引，我们确实期望通过我们谈论的销量改善和定价行动来抵消大部分5000万美元的顺序逆风。Q: Perfect. Thank you. Well, thank you, everyone. We'd like to thank you for listening in today. And as always, we're available after the call for any follow-up questions. Daryl, please go ahead and close out the call. Ladies and gentlemen, thank you so much for your participation. This does conclude today's teleconference and webcast. Please disconnect your lines at this time and have a wonderful day.