Lori Ryerkerk: Yes. Thanks, Arun. Look, we still have a ways to go with the acquisition of M&M and the cleanup activities. I think as we get through S/4, this is a big milestone for us and will allow us to find other opportunities to better run these businesses together. So that is kind of first and foremost, our focus. But I would also say, as it comes to divestitures, we will, as we’ve always been, be opportunistic and smart about it. And if we see the opportunity to divest something in the company that is it worth that more to someone else than it is to us, we will, of course, pursue that.
Operator: Next question today is coming from Hassan Ahmed from Alembic Global.
Hassan Ahmed: A two-part question on the acetyl chain to start with. Your margins in Q4 sequentially were flat to even slightly up, which was a bit surprise, keeping in mind what the acetic acid to methanol spread did. So part one of the question is how did you achieve that margin expansion? And then as I sort of sit there and think about 2023 for acetic, there seems to have been quite a few industry outages, which I would imagine you guys benefited from. So as you, guys, sort of gave us that bridge to 2024 earnings, you’re talking about a $50 million to $75 million headwind from one-offs. Is the positive impact of sort of those outages baked into that as well?
Scott Richardson: Yes. Thanks for the question, Hassan. Let me start by really kind of committing the team for continuing to flex this integrated value chain model. What you saw in the fourth quarter is a combination of the team flexing production as much as possible given some of the outages that were unexpected in the Americas and flexing that to the highest value end uses that we saw and to our teams in the field and the manufacturing environment really pulling costs down as much as possible, given the economic environment that we’re in. As you alluded to, some of those reverse out as we move our way into next year. But I think we do expect the markets to grow kind of in that global GDP level in the acetyl value chain, which will give us some potential offset to any kind of industry outages that may or may not happen.
We are expecting utilization to remain in kind of the 85% to 90% range. So much like you saw last year, if you see some dislocation in markets, we tend to be able to benefit from that in the short term.
Hassan Ahmed: Very helpful, Scott. And as a follow-up on the sort of M&M side of things. You, guys, obviously shut down some nylon capacity. So if you could sort of talk a bit about what you’re seeing in terms of near- to medium-term supply-demand fundamentals on nylon. And part and parcel with that, in the last quarter, you guys talked about maximizing your make versus buy decision? What’s the thought process in light of what you’re seeing in terms of nylon supply-demand fundamentals on the make versus buy as well?
Scott Richardson: Our focus is creating a contemporary operating model for nylon. Not relying on low-cost raw materials to create value. But controlling where that value creation comes from. And for us, that really comes from creating compounds that are unique for our customers and maximizing that part of the value chain as much as possible. We have the ability, given where the dynamics are to make some of those make first buy decisions, as you mentioned earlier, Hassan. And as we do that, we’re going to be focused, much like we do in the acetyl chain, on what is the lowest cost to supply those compounds so we can remain competitive. But fundamentally, we are working to create a business model here that is minimum of 25% EBITDA in any economic environment.
And so the first steps of that to take controllable costs out with the shutdown of our production capacity in Europe and then maximize our low-cost capacities that we have here in the Americas as well as purchases in Asia.
Operator: Next question is coming from Laurence Alexander from Jefferies.
Laurence Alexander : Can you clarify the EBITDA impact from incentive comp and working capital flows in 2023 and therefore, the bridge to 2024?
Lori Ryerkerk: Sorry, I was just having a little trouble hearing your question. In 2023, we reduced inventory by about $450 million. Of that, 80% came from EM. The rest came from AC. And what I would say, it was punitive to our EBIT for the year. At the same time, our businesses did a really great job offsetting the impacts of that as well as minimizing it and making sure we took some reductions in raw materials and intermediates and things that didn’t have as much of an EBITDA impact.
Laurence Alexander : Okay. Great. And just in terms of the incentive comp 2024 versus 2023. Is it an incremental headwind?
Lori Ryerkerk: I would — for the inventory reductions, which will be less this year, I would expect a similar level of EBITDA hit for that. So I don’t see that as being a year-on-year headwind.
Scott Richardson: Yes. And on incentive comp, Laurence, we don’t — I wouldn’t expect it to be material year-over-year.
Operator: Your next question is coming from Salvator Tiano from Bank of America.
Salvator Tiano: Thank you very much. So first question I wanted to ask on the acetyl chain. It seems like you’re assuming acetic acid and VAM and acetyl spreads probably will be flat year-on-year. So the growth will come from the Clear Lake expansion. What are you seeing on the supplies because it feels that the supply comes online in China in 2024, could this actually be an additional risk? And if the acid prices do come down, that is not part of the $11 to $12 guidance?
Scott Richardson: Yes. So thanks for your question. Let me try to answer it. You put out on us a few times here. Let me first kind of hit what Lori talked about earlier around the $100 million really coming through productivity on a year-over-year basis. As we mentioned earlier on the call, we would expect to see growth more in line with GDP, so low single digits. There, given what we’re seeing kind of right now in the construction sector, as Lori talked about earlier. That’s kind of going to be offset by some of the outages that we had earlier in the year. So I would not focus too much on changes in utilization. The industry has more or less kind of already absorbed that new capacity that has come online in China. So really think about the year-over-year lift coming from our productivity projects.
Lori Ryerkerk: And maybe if I could add just a little bit more color on that. If you actually look at, say, China acid pricing through the year, it was actually very steady throughout the year, except for a very short lift that we saw at the end of Q3 based on some outages in the industry. But that was very short-lived and really went away as we went through, got into the fourth quarter. So I would say we saw capacity come online. Last year as well, more capacity last year than it’s going to come online, and that’s already been absorbed, and we’re still at that 85% to 90% utilization. So while there may be some additions in ’24, it is much smaller than we experienced in ’23, and we didn’t really see the ’23 capacity adds have a long-term impact on pricing.
Salvator Tiano: Okay. Perfect. And for my follow-up, I want to ask a little bit about the Red Sea disruptions and assuming that may disrupt Asia to Europe trade close, how could this impact Celanese these earnings, especially in Europe? I guess, I could see this being posted in regard to lower nylon or POM imports. But at the same time, it could affect the imports of some of the raw material sides. So what would be the impact, you think?
Lori Ryerkerk: Yes, I’m not sure that there’ll be any benefit at this point in time. What I would say though, this is a good reflection of the value of our global supply chain for all of our businesses because despite the challenges in the Red Sea and the Suez, there has been a lengthening of supply chain for many producers and suppliers. There has also been — that’s added some cost for some of the folks trying to get into Europe, in particular, from Asia. But because of our global supply chain, we are able to provide from other parts of the world. So we’re not seeing the increased cost. What I’d say is most of the effect we’ve seen, I’d say, is temporary as people adjust to the new lengthened global supply chain. So we’re not really baking in any uplift or loss at this point from the issues in the Suez.
Operator: Our next question today is coming from Matthew Blair from Tudor, Pickering, Holt.
Matthew Blair: So the automakers have been talking about running a lot leaner going forward and keeping their inventories low and supporting their margins rather than the previous way of just overproducing and then putting everything on sale. And I was wondering, how do you see the shift from Celanese’s perspective? Is this potentially exciting to you because perhaps it could result in higher margins for Celanese? Or is potentially a concern because it might have some impact on our overall auto volumes?
Scott Richardson: We don’t see it as being really a material impact for us. I mean if you think about carrying lower inventories, it’s largely already kind of been baked into where things are right now. And honestly, it just creates, I think, less kind of ups and downs from what we’ve historically seen because you get restocking, destocking to not have that in the future, certainly would not be a bad thing for us at all. So — but overall, we don’t see really any significant impact.
Matthew Blair: Sounds good. And then I just want to clarify on the Clear Lake acetic acid expansion, this $100 million in productivity. Is this also your estimate of like the long-run EBITDA potential for this expansion? Or what do you think it could generate in a more normalized environment?
Lori Ryerkerk: Well, remember, we justified the expansion of Clear Lake acid and the CCU project, really, well, the Clear Lake just on productivity, so catalyst savings, energy savings, less freight by shipping out of the U.S. versus Asia to Europe, so those sorts of things. So that $100 million, I would say, is intact. It also tied to the CCU project, which again was a very low-cost project that really was initially put in place just to generate additional methanol for use at our Clear Lake site. Now we think there’ll be more value from that as we go forward as we see what customer demand is for lower carbon products, but we probably won’t have a good feel for that until later in the year and into 2025. If we were to get in a situation like we saw in ’21 or even in ’18, where a lot of supply disruption, rapid demand growth obviously, we could use Clear Lake for a source of acetic acid production into those very tight markets, which would greatly increase the return.
But again, we’re not counting on that. We justified the project based on productivity. And if there is a flywheel if we get into periods of higher demand and margins.
