Celanese Corp - Series A (CE) — Q4 2023 Earnings Call Transcript

Thanks, Kevin. Welcome to the Celanese Corporation fourth quarter 2023 earnings conference call. My name is Brandon Ayache, Vice President of Investor Relations. And with me today on the call are Lori Ryerkerk, Chairman of the Board and Chief Executive Officer; Scott Richardson, Chief Operating Officer; and Chuck Kyrish, Chief Financial Officer. Celanese distributed its fourth quarter earnings release via Business Wire and posted prepared comments on our Investor Relations website yesterday afternoon. As a reminder, we'll discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements which can be found at the end of both the press release and the prepared comments. Form 8-K reports containing all these materials have also been submitted to the SEC. With that, Kevin, let's go ahead and open it up for questions.

I was wondering if you could talk about your expectations for the M&M business in 2024 and kind of both near term and longer term. So in the first quarter, you seem to call out some improvement. I'm not really sure if that's an assumption of market improvement or price cost improvement in earnings. So I wanted to clarify that. And then second, kind of how do you layer on the cost savings versus market and everything else where you expect to exit the year?

Yes. Thanks for the question, Josh. If we look at first quarter, we do expect a really meaningful lift in M&M earnings in the first quarter and, in fact, expect first quarter to be our highest quarterly EBITDA since the acquisition. I think that's a number of things. The biggest factor is really starting to see the pull-through of lower raw materials and lower fixed costs that we were generating this year but needed to move the higher cost materials through inventory. So I'd say that's over half of the improvement we expect to see in the first quarter. We do expect recovery in auto versus the seasonal destocking that we experienced in the fourth quarter which was an issue for M&M. And then we start to see some of the initial fixed cost improvements from the footprint optimizations that we initiated last year and announced, although I would expect those to become more meaningful in the second half of the year and actually into next year as well. And so we do see evidence for that as we are seeing variable margin improving in January as we start to see that inventory pull-through of lower raw materials and fixed costs. So we feel pretty confident in that. And for some key areas like Zytel, we saw that really bottom in the fourth quarter and we're starting to see the recovery there. So I'd say we feel good about the first quarter and the meaningful uplift that we'll have in M&M next year as well. Fundamentally, I would say we continue to see M&M as a really great business. All the reasons that we bought it are still there. We have just been in a very difficult backdrop that has made it hard to get the full value of the synergies as well as some of the volume recovery and growth that we had counted on. I think if you looked at it today in what would be a more normal demand backdrop, we would find that M&M would be accretive.

Lori, I think you completed an SAP implementation just a few weeks ago. Can you comment on how that's going so far, kind of level of integration across the company? And remind us of what the benefits might be as your TSAs roll off?

Yes. Thanks for the question, Kevin. So we did our SAP integration; the last version of that went live on February 1. Maybe I should actually start out by thanking the over 1,600 people in the organization who have worked on the SAP integration, not full time, obviously, but had some role in it. And really, we often think about SAP integration as an IT effort, but it's really a full business effort, including the finance, customer service, commercial businesses. It goes across everybody. And our folks have worked very hard to make this a success in only 15 months after we did the integration, which I think is fast by any standard. And then after they had already integrated the heritage Celanese businesses earlier last year onto the same SAP S/4 platform. So really excited to get this done. I would say this is probably the last major step in our integration and will really help us now as we keep layering on the various processes to the platform, will really help us achieve the next level of synergy including getting rid of the TSA from DuPont, but also the synergies of people being able to work together on one platform, being able to have better access to the data, etc. I'd say the integration went very smoothly. So supply chain production are all on the new platform running well. We're able to take an order, we're able to produce the chip in order and we're able to get paid for an order. So that was the first order of business. And now we're gearing up for our first month-end close on the new platform. But again, I think it's been remarkably smooth; great kudos to the extended team that made that happen. And I'd say so far on the integration, we've seen no surprises.

And then secondly, if I may, can you comment on your input cost outlook for 2024? And if those costs trended flat from here, what sort of benefit or tailwind might we expect for this year?

So I would say, I mean, if you're talking about raw material costs, certainly raws have come down versus where we were a year ago. And who knows what will happen, but we also know that we are now pulling through the lower cost of raw and lower fixed costs that we built on. I would say '24 is very much a year of being able to deliver on the actions that were taken in '23. And so I think that is built in, obviously, into our outlook for the year. I think the important thing that we're focused on, and we've talked about all year, is we want to continue to control what's controllable. At Celanese, we're really good at execution. I think you see that with what we've done so far. All of the projects we were able to take on at the same time. And so really, as we move into '24, we see the benefits of that execution in '23 as well as all the steps we have in '24.

You said that the synergies in the M&M business would be $150 million. Does that mean that the adjusted EBIT growth in M&M should be at least $150 million in 2024 year-over-year?

Thanks, Jeff. No, because of a number of factors there. So the synergies we're expecting for this year is $150 million; only about 40% of those actually show up in M&M. The vast majority of them do show up in the EM profile, but some of them also show up in BU other and other areas.

Maybe to reframe it a different way. Do you expect the M&M business to grow its EBIT exclusive of the synergies?

Yes, thank you. I may have misunderstood your initial question. We anticipate growth in both our legacy EM businesses and a notable increase in the M&M businesses, even without considering synergies for the year. Our outlook for the year is between $11 to $12, and when you factor in an additional $100 million in acetyls, most of the increase from the $9 we achieved this year comes from that integrated EM business.

Just wondering if you could help bridge us from 1Q to the remaining quarters? I know there seems to be a lot more headwinds in Q1; more of the synergies and everything, all the positives are coming in 2Q to 3Q. So when you think about going from $2 to a lot higher in the remaining three quarters, how does that sort of happen? And then, are the last three quarters basically equal in EPS is kind of the way to look at it?

Yes. Thanks for the question, Mike. The way I look at it is if we look at what we're expecting to achieve in Q1, if you do the math, it says we need 300 to 340 in each of the remaining quarters. I would expect that to ramp up more in the second half, but I would still expect a pretty good ramp in the second quarter as well. So think about it this way. You don't have the turnarounds in Q2 that you had in Q1, so that's a $50 million lift. And then in EM, the vast majority of the additional lift in that quarter comes from EM and it's really synergies and flow-through of lower cost inventory. It's returning too. We have some seasonality in medical is always low in the first quarter; that should come back in the second quarter. Then in AC, you start to see the benefits of the project as we move through the second quarter. So I would say, we do expect a significant uplift in Q2 but even more uplift in Q3 and Q4. I would expect Q3 to be the highest quarter because we would expect some seasonality again in Q4.

Got it. And then as a quick follow-up. Several companies have impaired assets from acquisitions over the last couple of years. Now I know M&M has underperformed, but are there any parts from M&M close to that in terms of impairment levels? And if so, what are the areas?

Yes, Mike. We'll look at that when that time comes. We've taken a look at that at the EM level and have not seen markers on that that would cause us at this point in time. I think that's a possibility.

Lori, just on a high-level basis, what sort of global macroeconomic backdrop are you embedding as it relates to your guidance? Obviously, interest rates are still high. ISM, very mixed globally, China, who knows. It still sounds like there's pockets of destocking, etc., on the durable goods side. How do you sort of factor all that in as it relates to the evolution in 2024?

At this point, we are really concentrating on what we can influence. In our guidance of $11 to $12, we anticipate a reduction in destocking. However, we are not expecting a significant increase in demand or restocking. We still expect demand patterns to be below normal, but without the destocking, which provides a slight upside of a few percent at most. Our outlook is primarily centered on what we can control. As we enter 2024, although we are not back to normal demand patterns, we are observing some easing of the demand and competitive challenges we faced. We have noted a decrease in the movement of materials from Asia to Europe, suggesting an improvement in local demand in China. Generally, demand for consumption in China seems to be approaching normal levels, but exports from China, especially to Europe, remain weak, indicating some ongoing downside in that area. In the Americas, demand is gradually returning, with an improvement in industrial sectors during the fourth quarter, although we experienced a seasonal destocking in the automotive sector. I expect that to rebound in the first quarter, but I do not anticipate a significant increase in demand for consumer goods and electronics. In Europe, the situation is similar to the U.S., but it might take longer to recover to normal demand levels. On a positive note, we are seeing some improvement in construction as it normalizes, which is also reflected in a slight increase in VAM pricing.

Okay. Super helpful. And then for the second question, the outages in 2024 that seem front-end loaded, but would those bulk just sort of pull forward given weaker demand? Or was that sort of in line with the original plan?

No, I'd say it's very much in line with the original plan. In fact, a little bit, we've pushed back a little out of '23 into '24 with the delay in the project at Clear Lake. But I would say these are planned turnarounds. These are turnarounds that occur every three years in the case of VAM, four years in the case of methanol. And so very much as planned. And I would also say they've gone very well. We've gotten through all the major discovery work and no surprises, so feel like we're on track to meet our plans around those turnarounds.

This is Ryan on for Aleksey. The first question, I wanted to dig into a little bit on nylon pricing. I believe at least one peer of yours is out in the market, announcing some pricing. Are you seeing any momentum of it here? And can you just talk about what your expectations might be for the balance of the year?

Yes. Look, nylon pricing varies a lot depending on region or end use. But I would say, in general, we feel like we hit kind of the bottom in terms of variable margins. So it's not just pricing that's important, but it's raw materials as well, so raw materials have come down. But I'd say, in general, we feel like we're coming off the bottom. But let me hand it over to Scott, because I think he can give a bit more color here.

No. I think Lori hit it, Ryan. We are seeing a lot of stability, which is a really good thing. And as Lori mentioned, we're starting to see the flow-through of variable costs. So margins are expanding in the nylon business, and we continue to work, as we said in previous quarters, to get back some of that share that had been lost prior to us closing the transaction. So we feel good about the trajectory as we work our way through this year of the nylon business.

Great. That's very helpful. And then if I could just dig a little bit into the $150 million synergy target in your bridge for '24. If there's no demand improvement, demand kind of trends sideways from here. Do you still feel you're confident in being able to deliver on that target?

Yes. So I feel really confident in our ability to deliver on that $150 million. I think if you look at it, it really is in three buckets. The first really being the footprint optimization steps that we've taken at the end of this year, would start to show up in the bottom line next year. So that's probably about $50 million in the year. We have the transition to the single SAP platform, which is happening now, which gets us out of the TSA and we get other synergies from. And then we have cross-sell opportunities which have been identified this year, closed one this year, which will start to come online next year, and we'll start to see the revenue return from. So I feel very confident about that $150 million of synergies for 2024.

If I could just follow up, did you guys disclose what your M&M synergies were realized for 2023? Apologies if I missed that.

I'm not sure if we disclose it or not, but we achieved $100 million in synergies in 2023. A little bit lower than we had anticipated earlier in the year, but still above what we had thought at the beginning of the year. And really, the reason for that was the volume related, just not seen volume recovery and some of the volume-related synergies not pulling through. But again, those synergies are there; they will just pull through at a later time as volumes recover.

Got you. Understood. Understood. And if I could, a question on the acetyls chain. I know back in the '21 Investor Day, when you had acetate split out, the expectation was that it was going to be relatively flat to '21 during 2023, at $245 million of EBIT. I suspect it might have been higher than that. Can you give us an idea as to how well that part of the business is performing and what outlook is?

Yes. Look, acetate tow had a really good year this year as a result of the work we did last year to really reset how we contracted and how we manage that business. As you'll recall, we pulled it in to be part of the acetyl chain to give us more flexibility and more optionality much like we do for the rest of our projects. So I would say we called out our target was to get to the $245 million at Investor Day. I would say we have meaningfully exceeded that target for the year. But again, I think the important thing here is we are just running as part of the chain. And that way, we stabilize the earnings of the entire acetyl chain, much like we do with say redispersible powders and other downstream derivatives. It simply gives us another outlet to pull acetic acid through the chain to make sure we can maximize value from the chain and, again, stabilize earnings.

This is Turner Hendriks on for Vincent. I was wondering if you could provide your updated view on auto builds for 2024 and the impact of slowing EV sales on product mix in emerging markets and the middle market. Also, compared to China autos, how is the combined emerging markets and middle market business?

Yes. Thanks, Turner. First, let me start with auto builds. I think the industry, most publications are projecting somewhere more or less flattish build. Our business tends to grow about 150 basis points to 200 basis points above build. So that's what we're baking into our current plan. When it comes to the mix of EVs, we're largely across our EM portfolio pretty agnostic to whether it's an EV, an ICE vehicle or honestly, hybrids are the best. And we have about 20% more accessible content on a hybrid vehicle. So starting, particularly here in the U.S., to see more shifts to hybrid that tends to be a good thing for us overall. So really no impact if we see the mix impacts here in the U.S. change away from EVs and move back to ICE or to hybrid. And from a China perspective, overall, if you kind of start at the corporate level, it's about a quarter of our overall sales. You bring that down into EM pretty similar. And our overall exposure is kind of around that range as well in terms of automotive in China.

Of the lower raw materials cost in nylon, how significant is this expected to be in 2024? And what's the confidence that these will not get passed through to price?

I think, as Lori mentioned, we have a bucket of the lower variable and fixed cost we think is going to flow through the earnings. That could be the largest year-over-year benefit for us. A good chunk of that is in the nylon part of the M&M portfolio. So it has the ability to be a pretty significant driver of uplift year-over-year. A lot will depend upon what happens with raw materials as well as pricing in the second half of the year. We feel good about where things are in the first half of the year, given the amount of inventory that we have in the order book as we see it. Pricing, as we said earlier, has kind of bottomed out in nylon, so we don't expect to see a lot of pricing impact downward from where it is today. So we feel very confident that the margins we're seeing right now here, at least in the first half, are here to stay.

Lori, can you talk to the foundational level of earnings in acetyls post the Clear Lake expansion coming on stream and given the step-up in acetate tow earnings we've seen this year?

Yes, it's quite straightforward. We have indicated that our foundational level of earnings is currently $1.3 billion. We believe we have demonstrated this in 2023, even in challenging markets for most of the year. This year, we anticipate an increase of $100 million, which we attribute to productivity gains from the combination of Panther and our CCU project, with Panther referring to the Clear Lake acetic acid expansion.

And have you assumed some normalized level of steel demand, what could our earnings power be?

Well, I mean, look, we've had years where we were over $2 billion in acetyls. So I mean, when we have fly-ups and those sorts of things because of supply outages or sudden demand increases, it can be very high. But again, right now, we're focused on what we can control. And so I would focus on that $1.4 level of foundational earnings.

Hey, David, this is Chuck. For 2024, we do expect a really similar rate to '23. I'd use 9% for now for that, and we will update you if that changes. Going forward, we feel like we're in a good position. It will depend on the jurisdictional mix of our earnings. And we'll update that each year, but we feel like we're in a pretty good position where we are right now.

Great. And apologies for that earlier. I guess, first off, just on the deleveraging trajectory. I know that the target obviously is to get to 3 turns as rapidly as possible. Maybe you can just walk us through the opportunity on free cash flow and how you expect to get to that returns? Is there any more opportunity to harvest a little bit more free cash flow to working capital? Or yes, maybe we can start with that.

Yes. Let me ask Chuck to cover the details. But what I would say is, this year, like we were last year, we were very focused on generation of free cash flow and deleveraging. We're very committed to maintaining that investment grade. And so we are anxious to delever to that 3x level so that we will have flexibility in our use of capital going forward and be able to move on with other opportunities in the company. But Chuck, let me you walk through the bucket.

Yes. Thanks. Thanks, Lori. Thanks, Arun. First, I want to just thank the global teams that we have that drove the record free cash results in '23. That's a lot of work by a lot of smart people. So I just want to salute that for your efforts. You know who you are out there. For '24, let me give you a few key drivers that we're seeing for free cash flow right now. If we start with earnings, if you take our EPS guide, that would translate into about $300 million of incremental net income, give or take. On working capital, our target for '24 is $100 million to $150 million benefit for the year. This compares with a little over $500 million cash benefit for the year in '23. So not as much working capital benefit year-over-year, but we're still striving for working capital benefit within the year. And this driver could change depending on how demand shapes up across '24, of course, and kind of how earnings and synergies ramp. And we do know CapEx should be lower year-over-year by $100 million to $150 million as we cycle out of a lot of large projects. Those are the key drivers. There are some other puts and takes in that, that we need to refine as the year goes on like cash tax and cost to achieve synergies. But I would focus on key drivers right now in '24. And as you know, we are really focused on converting our earnings into cash flow, deleveraging the balance sheet. We think we're going to finish this year much closer to our 3x target and we expect to finish to our 3x target in 2025.

Great. And then I just have one quick follow-up. Just thinking about the portfolio as it stands now. Obviously, you've gone through some changes within the food ingredients and integrating M&M. Is there anything else on the horizon that we should be thinking about as far as portfolio management or potential divestitures or anything along those lines?

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 worth more to someone else than it is to us, we will, of course, pursue that.

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 of a 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?

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.

Very helpful, Scott. And as a follow-up on the 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?

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 a 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.

Can you clarify the EBITDA impact from incentive comp and working capital flows in 2023 and therefore, the bridge to 2024?

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.

Okay. Great. And just in terms of the incentive comp for 2024 versus 2023. Is it an incremental headwind?

I expect a similar level of EBITDA impact from the inventory reductions this year, which will be less than last year. Therefore, I do not anticipate this being a year-on-year challenge.

Yes, I wouldn't expect the incentive compensation to be significantly different year-over-year.

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?

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.

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 got into the fourth quarter. So I would say we saw capacity come online last year as well, more capacity last year than is 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.

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's 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?

I don't believe there will be any benefit at this time. However, this situation highlights the value of our global supply chain across all our businesses. Despite the challenges in the Red Sea and the Suez, many producers and suppliers are experiencing longer supply chains, which has increased costs for some trying to reach Europe from Asia. Fortunately, our global supply chain allows us to source from other regions, so we are not facing these increased costs. Most of the effects we are seeing are temporary as everyone adjusts to the longer global supply chain. Therefore, we are not anticipating any profit or loss from the issues in the Suez at this point.

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?

We don't view it as having a significant impact on us. Carrying lower inventories has largely already been accounted for in our current situation. In fact, it may lead to fewer fluctuations compared to what we've historically experienced, as we won't have the cycles of restocking and destocking in the future, which would actually be beneficial for us. Overall, we don't anticipate any major effects.

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 the long-run EBITDA potential for this expansion? Or what do you think it could generate in a more normalized environment?

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, we could use Clear Lake as 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.

Yes, Mike. I'd add one of the other benefits in the near term for us is that it adds redundancy to our U.S. Gulf Coast network. And we called out in the prepared comments that we had some unexpected outages that would have more or less been offset had we had the new acetic acid unit up and operating. So it gives us that redundancy to ensure that some of the near-term blips that we've had in our U.S. Gulf Coast network in the past, we're able to manage those better in the future.

Back to Sal's question, Red Sea and the Suez. Do you think the reduced Asia POM exports into Europe or coincident with the Red Sea incident here? It seems odd that China would be improving before Lunar New Year. And I think Japan just slipped back into recession. So we're not hearing from other companies about demand picking up in Asia.

In China, in Asia, which is reducing the amount of material that is having to move out of Asia. So I think subsequently, we may see that impact continue because of the Red Sea, but I really think it does demonstrate a strengthening of the market in Asia.

And then secondly, I'm not sure we heard earlier about the stocking cycle in Vamac rubber. Is it harder to track customer inventory in that product area?

Vamac is quite distinct because it is a high-value product mainly utilized in the automotive sector, featuring unique qualities and specific marketing strategies. Not many companies offer it, which is one reason we were interested in the M&M equity since we believed it would complement Santoprene well. We discovered that it is indeed very complementary for upcoming projects. However, due to reliability issues, demand was significant but constrained during 2021 and 2022. Since the acquisition, we have concentrated on addressing these reliability problems and boosting production, which we have successfully achieved. By mid-2023, when our volumes increased, customers began purchasing as much as they could because they were accustomed to shortages. As we progressed into the fourth quarter, they recognized that supply stability had improved, which led to what I believe will be a reversal of the low we experienced in the fourth quarter. Moving forward this year, I expect to see more regular demand patterns compared to the high peaks we observed in the second and third quarters and the dip in the fourth quarter.

The first question is on M&M. If I go back to the acquisition, half of this business is in nylons and the other half is in China and Asia. So, when we compare the current earnings level to the anticipated $900 million, where exactly is the shortfall by region and product? Is it in Asia, or does it actually stem from Europe or the U.S.? Is this related to nylons, or is it outside that category? That's my first question. The next question pertains to the acetic value chain. This year, you may still experience some pressure due to the demand versus supply imbalance upstream in acetic acid. What is your strategy regarding VAE and DPP in the midstream or downstream? Are you aiming to capture more market share, or are you content with maintaining a more upstream focus?

Yes. Regarding the M&M acquisition, it is true that a significant portion involves nylon, including high-temperature and specialized nylons. Since the acquisition, we have faced challenges primarily with standard grade nylons and a loss in volumes in 2022 due to pricing decisions made at that time. Our teams have been effective in starting to recover some of that lost volume, which is crucial, and we expect continued improvement in variable margins as we benefit from lower raw material costs and lower fixed costs. While the challenges were related to nylon, they were not limited to any specific region. DuPont had a strong presence in Asia, excluding China, which has remained stable this year. We also had a stronger performance in the U.S. automotive sector, but we were less strong in Europe, where Celanese performed better. Therefore, the difficulties were more about the volume loss from 2022 and our efforts to recover that volume amid a low-demand environment. For your second question on acetic acid, I will have Scott address that.

Yes. Very similar to what we saw last year. The current dynamics that we're seeing in the market globally, it makes a lot more sense for us to be pushing product downstream just given where some of the pricing and margin is on the upstream, and VAE has been a heavy lift for us from an earnings standpoint along with our redispersable powders as well as the acetate tow business, as we talked about. And the current dynamics, it just makes a lot of sense for us to continue to maximize production as far downstream as we can. Kevin, we'll make the next question.

Maybe just a clarification. On the $50 million turnaround impacts, are the large majority isolated in the first quarter? And do you have any other planned turnarounds to be up in 2024 or early 2025?

Thanks, Patrick. So the $50 million is in the first quarter. We're up about $50 million from last year. So through the remainder of the year, there's probably another $50 million spread across the remaining three quarters. But that's consistent with last year. So incremental to '23 it’s $50 million, and I would think of it all occurring in the first quarter.

Thanks, everyone. We'd like to thank everyone for joining. As always, we're around after the call if you have any follow-up questions at all, Kevin, please go ahead and close out the call.