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Celanese Corporation (NYSE:CE)

Q4 2012 Earnings Call

January 29, 2013 10:00 am ET

Executives

Jon Puckett – Investor Relations

Mark C. Rohr – Chairman and Chief Executive Officer

Doug Madden – Chief Operating Officer

Christoper W. Jensen – Senior Vice President, Finance

Steven Sterin –Senior Vice President, Chief Financial Officer and President, Advanced Fuel Technologies Business

Analysts

Kevin McCarthy – Bank of America-Merrill Lynch

Duffy Fischer – Barclays

Mike Ritzenthaler – Piper Jaffray

P.J. Juvekar – Citi

David Begleiter – Deutsche Bank

Laurence Alexander – Jefferies & Company

Jeff Zekauskas – JPMorgan Securities, Inc

Nils Wallin – CLSA

Frank Mitsch – Wells Fargo

Hassan Ahmed – Alembic Global Advisors

Robert Koort – Goldman Sachs

Vincent Andrews – Morgan Stanley

John Mcnulty – Credit Suisse

Operator

Good day, ladies and gentlemen, and welcome to the Celanese Corporation Q4 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded.

I would now like to discuss this conference call, Mr. Jon Puckett. You may begin sir.

Jon Puckett

Thanks, Kevin. And welcome to the Celanese Corporation fourth quarter 2012 conference call. My name is Jon Puckett. With me today are Mark Rohr, Chairman and Chief Executive Officer; Steven Sterin, Senior Vice President and Chief Financial Officer; Doug Madden, Chief Operating Officer; and Mark Oberle, Senior Vice President, Corporate Affairs.

The Celanese Corporation fourth quarter 2012 earnings release was distributed via Business Wire yesterday after market close. The slides for the call and our prepared comments for the quarter were also posted on our website www.celanese.com in the Investor section. All of these items have been submitted to the SEC in a current report on Form 8-K.

As a reminder, some of the matters discussed today and included in our presentations may include forward-looking statements concerning, for example, Celanese Corporation’s future objectives and results. Please note the cautionary language contained in the posted PowerPoint slides.

Also, some of the matters discussed and presented include references to non-GAAP financial measures. Explanations of these measures and reconciliations to the comparable GAAP measures are included in the posted slides or the press release as applicable.

This morning, Mark Rohr, will provide some introductory comments and then we will field your questions.

I’d now like to turn the call over to Mark.

Mark C. Rohr

Thanks, Jon, and welcome everyone to the call today. We released our prepared remarks last night so I’ll do a brief summary of the quarter before opening the line for questions.

For the quarter, we reported adjusted earnings per share of $0.67 on revenue of $1.5 billion. This represents the 16% adjusted earnings growth year-over-year on expanded operating EBITDA margins in three out of four businesses. We generated strong cash flow again this quarter and recorded our second highest operating cash flow of $722 million for the year. Adjusted free cash flow for the year was $339 million despite higher year-over-year capital spending on growth projects like ethanol. And this number also includes a $100 million of voluntary U.S. pension contribution. These results demonstrate the strength of our business, our technology platforms, and most importantly the capability of our teams around the world.

Looking forward to 2013, we expect the economic environment to remain uncertain. And as we said last quarter, we are not planning on global economic growth to help Celanese this year. To drive earnings growth in 2013, we will focus on Celanese-specific initiatives, like productivity, like our Acetate footprint rationalization, like the expansion at our Chinese facility in Nantong and like the planned start-up of ethanol production facility in Nanjing.

We also expect our efforts to increase the effectiveness and speed of new product introductions to help drive earnings growth this year. The slowdown in Asia and Europe will increase the percentage of earnings we realize in higher tax jurisdictions, particularly the U.S., increasing our 2013 forecasted adjusted tax rate by 200 basis points to 19%, or about 10% per share impact for 2013. Nonetheless, we continue to believe the positive effect of our actions will yield adjusted EPS growth between $0.45 and $0.50 in 2013.

Now, before we move to Q&A, I want to express my gratitude to our Chief Operating Officer, Doug Madden. Doug is going to retire at the end of March and he has been a critical part of the organization for the last 28 years. He has had multiple departments, divisions in our corporation. We have all benefitted from his knowledge about the industry and the world chemistry, and Doug has self transformed Celanese into customer focused business is today and he set the foundation for the innovative force it will become tomorrow. Doug, on behalf of the entire Celanese team, I want to thank you for your many contributions and wish you all the best in retirement.

With that, I’ll turn the call over to Jon for Q&A.

Jon Puckett

Thanks, Mark. Kevin, will you give the instructions and let me just remind folks that we'd ask you to have one question and one follow-up, and just we can get everybody’s question then.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Kevin McCarthy with Bank of America.

Kevin McCarthy – Bank of America-Merrill Lynch

Mark, could you provide an update on your discussions related to fuel ethanol in Indonesia and China please?

Mark C. Rohr

Yeah. Thanks, Kevin. We continue to work with Pertamina in Indonesia. We are nearing the end of the first phase of that study, and we're looking forward and I think we’ll be in a position for too long to announce moving into the second phase for that project. If you look at that project under a big perspective, fuel ethanol in Indonesia really works well. We have abundant availability of low-cost coal. We have entered demand in that economy for clean fuel and the growing fuel demand is what imported fuel that can be offset in the results of subsidies that government pay.

So it's a really good economic formula. Pertamina is excited, we are excited, but we really have some more work to do. So I hope we’re going to announce something before too long about moving in the second phase and currently our view is that we should be in a position by the end of this year to have a go/no-go decision on that project.

Kevin McCarthy – Bank of America-Merrill Lynch

Okay, and then…

Mark C. Rohr

Go ahead I’m sorry.

Kevin McCarthy – Bank of America-Merrill Lynch

Please go ahead.

Mark C. Rohr

In China, we’re continuing to work with some partners over there and I just believe, I think China is a more complex model in many ways. It's a more complex fuel distribution system, with a lot of regional players in China, I will say we are making progress, and I hope that we can make some announcements in China before too long.

Kevin McCarthy – Bank of America-Merrill Lynch

And then as a follow-up Mark, just to clarify the timeline on the 275 kilo tons that you plan to add at Nanjing for industrial ethanol. I think the prepared remarks had referenced a late 2013 start up. I don’t mean to split hairs, but I had the impression that it was perhaps mid-2013 should July type timeframe is. Is that the case or has there been any material change there?

Mark C. Rohr

Part of it is, we are creating some confusion here we not mean to. What we mechanically complete in June, early July and we commissioning after that and we have a plan to bringing on slowly and that’s not, because we have any concerns about technology, but we want to move this material into markets and we’ve got commercialization effort that’s going to push it around China. So I’m trying to, when I say the third quarter, I mean I think before you really see some impact it’s going to be role in third and fourth quarter.

Kevin McCarthy – Bank of America-Merrill Lynch

Understood. Thanks for that clarification.

Mark C. Rohr

Thank you, Kevin.

Jon Puckett

Okay. Operator, let’s move to the next question.

Operator

Our next question comes from Duffy Fischer with Barclays.

Duffy Fischer – Barclays

Couple of questions. One, you mentioned that you weren’t planning any help from GDP, but I’m just – if I go to slide 12 you talk about some expected improvement in the second half. Can you just quantify how much help you are expecting kind of in the second half and this was under the Acetyl’s Intermediate bullet there?

Mark C. Rohr

This is a broad segment. There are sub-segments we are expecting some goodness from the economy, but we also got some badness. So an example of that be is we are expecting Emulsions to pickup as construction comes back a bit, but we’ve been struggling a bit with EVA going photovoltaic. So there is some offset and what I’m trying to say is that, on a balanced basis, GDP is not going to be doing a lot for us this year. The comment about the second half of the year really relates to broadly what we see in the last two or three years, which is a stronger first half and actually a weaker second half, and we really need this year to not have that repeated.

So we believe as we come out of Chinese New Year, we’re going to see some straightening when we look at capacity utilization in the AR business and Doug can talk about that as well. We are seeing that push up it has been mid-to-low 70s maybe as pushed up a bit higher in the 70s now. So we are seeing some positive signs, and so we are depending on a little bit stronger second half to make these numbers.

Doug Madden

Duffy, it’s Doug. I will just comment to following on Mark’s comments. You follow what’s going on in China and the fact that is there even reflecting I think in some of their public data a slower start up or ramp up around this year 8% GDP little bit more second half than first half.

If you look at some of the key drivers for our markets in our industries that we play a big role in autos in Europe, there you’re seeing the same kind of demographic I guess in terms of auto builds a little bit lighter in the first half of the year building in stronger net-net just modestly down year-over-year. So I think you kind of take a look at that is the underlying to the GDP as we’re trying to suggest we see the business following.

Duffy Fischer – Barclays

Okay. Great and then a couple of traders and consultants have mentioned that your Singapore plant has run a little bit in the last couple of months? Can you clarify kind of is that plant up and running and will it be running in the first half of this year?

Mark C. Rohr

Singapore is running now. Yes.

Duffy Fischer – Barclays

Great. Thank you. Thanks Doug.

Jon Puckett

Thanks. Let’s move on to the next question.

Operator

Our next question comes from Mike Ritzenthaler with Piper Jaffray.

Mike Ritzenthaler – Piper Jaffray

(Inaudible) the EU market is much weaker than the most recent expectations. Can you explain for us the risk that the decline of 3% that I think you embedded in your expectations comes materially lower kind of based on their commentary in the surplus capacity in Europe that's been plugging the various OEMs?

Mark C. Rohr

Yeah, Mike. When you look at all those in Europe, it's down year-over-year right now high single-digits probably 9%, Dough, something like that. I mean that's the kind of numbers that we see. For the full-year, the forecast is that it will be down 3% for the bill. So we made the earlier comments about the back of the year, there are positive numbers that you see built in this pretty anemic performance and Europe does have the second half stronger than the first half. So that's how we characterize that. We've also made comments about increased penetration, and we are seeing that really in Asia where we’re seeing numbers in the 40% increase sales in the automotive and that part of the world over the last year.

Doug Madden

So Mike, let me add a little bit more to that. If you kind of walk the world you started with your question in Europe and Mark is kind of given you the data on Europe. The thing about that net-net year-over-year, Europe down couple of percent, U.S. expected to be up by probably the same amount and Asia, Asia builds up substantially more probably high single-digit as a percent. As Mark said, we're seeing great growth year-over-year in our business in Asia relative to that industry. And if you recall, we see great growth in the amount of value and the amount of talent that we’ve put on every vehicle when we think about North America and EU, the more mature regions of the world.

We see some places where that’s going high single digit growth year-over-year which has a way of concentrating for may be modestly lower other goals as well. So frankly, overall we still see reasonably good industry and a market for 2013.

Mike Ritzenthaler – Piper Jaffray

Okay. And then in your 2013 qualitative outlook standards, it’s clear that year-over-year growth is expected in Consumer Specialties, Industrial Specialties might be flat, Acetyl Intermediates may see some modest growth. But I guess just on the AEM question a bit, the expectations are where I guess a little vague. Based on the innovation you spoke about, would it appear that you are expecting growth in the AEM next year as that penetration increases and as you see growth in some of these packets.

Mark C. Rohr

Yeah. I think we are expecting modest growth, but it’s – we’ve said flat because it’s closer to flat than growing.

Mike Ritzenthaler – Piper Jaffray

Okay. Fair enough. Thanks guys.

Jon Puckett

Okay. Kevin, let’s move on to the next question.

Operator

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

P.J. Juvekar – Citi

Yes. Hi, good morning.

Mark C. Rohr

Good morning.

P.J. Juvekar – Citi

A question on your ethanol plant in Nanjing, you are building this retrofit. It’s a new technology. So do you think your other potential partners in China are likely to wait and see how the Nanjing plant operates before they financing with you or?

Mark C. Rohr

Yes, P.J. There clearly is where we’ve had folks that will look at the technology and in the pilot plant there is a desire to see the plant that we are building operational. And so the project development is revolving around that to some extent. So, yeah, I think you are calling it right.

P.J. Juvekar – Citi

And the other question I have is, there is this new fuel standards of 54 miles per gallon of fuel efficiency, and as a result plastic use in cars is likely to go up. Just want to figure out how you are positioned to take advantage of that, because lot of these new materials that are being proposed like carbon fiber are on the outside of the car while your materials are more – under the hood and inside of the car. So where do you think that growth occur in this new material?

Mark C. Rohr

You are kind of fuel efficiency and the impact of that, one of the real drivers of that is lightness in vehicles, which really plays well into our AEM business and we're seeing that. We made few references actually to some of the composite materials we’re putting in cars, those are very attractive and we're seeing some pretty strong growth in that arena. We are also seeing manufacturers step out in the areas where they’ve not considered polymers before and things like (inaudible) even and we're very engaged in that kind of process.

So we are quite confident there is going to be a lot of growth in there. We have some advantages over carbon fiber. So we are, Doug if you got any numbers at top of your head, but we feel pretty good liability penetrate in that study.

Doug Madden

No, I guess P.J. the only think I could add is that if you just kind of look at it you're talking about in some cases hundreds and in some cases maybe thousands of different applications all with the intent of lightweight in those vehicles. There are models out there that I can tell you from my own business that we’re doubling the size on particular models and putting our polymers on those vehicles. Others don’t grow quite as rapidly.

So Mark mentioned a few, I mean still early stages composite materials and rims and wheels that not yet commercialized, but clearly in line with that longer-term goal. Those are the kind of materials that are intended to help reach those fuel efficiencies putting product into structural things like seats and getting strength as a structural item or typical ones even with dashboard, but light weighting those even further with some of the work that we’re doing on the polymer. So I just say that the work that we do with the OEMs is consistent with that long-term – with that long-term standard and it’s growth for Celanese.

Doug Madden

P. J. I will drill a little bit too is that we’ve advanced this technology largely in passenger vehicles. And there are other applications that are also very interested in moving this way in other arenas. So we have the ability to move horizontally, we think too in a fashion so we have gotten the structural growth that Doug talked about in automotives, I think we have other places that we’re exploring and getting some good receptivity through our technology.

P.J. Juvekar – Citi

Thank you. Helpful.

Doug Madden

Thanks P J.

Jon Puckett

Thanks P.J. Kevin let’s move to the next question.

Operator

Our next question comes from David Begleiter with Deutsche Bank.

David Begleiter – Deutsche Bank

And China I know it’s still early in the year, but any signs of visibility in terms of improved demand from the construction end market?

Mark C. Rohr

In the U.S. yes.

David Begleiter – Deutsche Bank

How about China?

Mark C. Rohr

China, I’m shaking my head, no I have not seen it yet, Doug you please.

Doug Madden

David, I think as we go into the New Year it’s typically close to New Year before we would see anything, I’d say that in China we’re modestly encouraged early on with the order books, but from years gone by we’ve learned that some time between for this year mid-to-later February before you see them come out of it. Last year they came out and wasn’t quite as strong we all know now, so we’re cautiously optimistic, but I think we need some time here to see how things develop.

David Begleiter – Deutsche Bank

And Mark just on Kelsterbach given the lower European volumes. How much for drag is that facility? How much is it running utilize right now and what’s the impact from depreciation or else what’s your overhead cost there?

Mark C. Rohr

Volumes are pretty good in Kelsterbach, I mean, what you tend to see, you tend to see a mixed impact maybe more than any thing or you may have to move in a low end applications if the high end stuff is not available. We’re actually going to be increasing volumes year-over-year on Kelsterbach, you may recall we brought on the second line late in the year and so we have higher volume supply metric output year-over-year, so you’re going to see actually more contribution from that side, this year than last. The depreciation in fact, that’s pretty honor. We in effect doubled our depreciation in that segment. Part of that the accounting treatments may we have Steven to comment on this.

Steven Sterin

Yeah. Yeah, we’re already running at the full run rate from depreciation so you won’t see anymore moving into 2013. But you will see when we complete the demolition of the old site, if all the proceeds we received from the Kelsterbach government will come through the P&L of the large gain offset by the old carrying value of the old plant. So unfortunately, even though we didn’t spend that capital the accounting requirements required us basically step up the new plant to full value, even though we only contributed a very small portion of the total amount. So that’s already reflected in depreciation and unfortunate we’ll continue to be so, about $0.20 a share, and then we’ll have a large one-time gain, hopefully later this year we’ll complete the demolition.

David Begleiter – Deutsche Bank

Thank you very much.

Doug Madden

Thanks David.

Jon Puckett

Kevin let’s move to the next question.

Operator

Our next question comes from the Laurence Alexander with Jefferies.

Laurence Alexander – Jefferies & Company

Good morning. So first, could you give an update on your strategic review and any sort of businesses that, or product lines that you think it could be either right sized or, optimized?

Doug Madden

Yeah, Laurence I’m happy to talk about the strategic review. I don’t think – I don’t want to get into that in too much specifics in, but what I will say is, we’ve gone through six month process of really accessing in-depth. Each business, the competitive landscape, our ability to innovate and moving to markets, we’ve got third-party validation about belief systems around the value of these products and the end-customers. And out of that we’ve outlined a path to get us to $2 billion of EBITDA, and it is a reasonable path. And we’ll share a lot of details with you guys on that, we have on Investor Day here this coming near.

We have said in the year, hurdles and obligations that we feel from return on capital need to be met for our business is to satisfy the expectations that we put on ourselves in the shareholder of [Celanese]. And there are some businesses that are currently don’t meet those expectations. You guys can look at our performance, which businesses those are. So, we’re not calling out anybody as be in a failure, when we’re working hard to try to change that and we have plans to change that, but these business is only to get to a point where they are contributing and a positive sense to the growth, and profitability to this corporation.

Laurence Alexander – Jefferies & Company

And then secondly, on this acetyl intermediate are there any derivative areas where you can see any scope for a pricing cycle in the next two years? Or do you think our demand prospects are just too muted for that?

Mark C. Rohr

Yeah, I think the later Laurence, we need a – we still need a healthy global economy or healthy global economy, that most of those today are from I would even call well balanced, I say that there is over capacity that sits within the world even on some of those derivatives. Recall that big part of those obviously got vinyl acetate monomer goes downstream heavily into construction related ultimately paints and coatings things that are consumed in that industry. Our esters Europe and Asia tied large parts of the auto industry and coatings on those autos, so the short answer is we need to grow healthier global economy, I think before we could see some thing in the next couple of years following any other unforeseen event that would occur.

Laurence Alexander – Jefferies & Company

Thank you.

Mark C. Rohr

Thanks a lot.

Jon Puckett

Kevin let’s move to the next question.

Operator

Our next question comes from Jeff Zekauskas with JPMorgan.

Jeff Zekauskas – JPMorgan Securities, Inc

Hi good morning.

Doug Madden

Good morning Jeff.

Jeff Zekauskas – JPMorgan Securities, Inc

Your volume contraction and consumer specialties of 13%, is that a one time event that comes from the closure of Spondon or is that something that will weigh into 2013 results?

Mark C. Rohr

So, Jeff the contraction does come from the closure of our Spondon site in the fourth quarter just about all of that. I suspect as we go through ’13 and the assumptions that we are able to offset some of that is, I think you saw in our fourth quarter of this year and those results were we continue to work to get a little bit more out of the rest of the footprint. Also you will see the expansion coming out of Nantong and the impact of that in the business performance. So there will be some net contraction, but it won’t be from what you saw or what you are seeing in Q4 going forward.

Mark C. Rohr

Yes. So think about, as Doug said, a little bit less top line contraction than you saw in Q4, low energy and overall bips spending within our client network, and then higher dividends coming in also from our joint ventures as we shift some capacity around there as well. So on a net basis, we have significant improvement in the profitability of consumer specialties particularly where the earnings come from.

Jeff Zekauskas – JPMorgan Securities, Inc

Okay. And as far as Indonesia and Pertamina go, has they committed to an ethanol-based fuel instead of say a methanol-based fuel or methanol derivatives or is that something that they continue to compare and to contemplate?

Mark C. Rohr

Well, I know that the government has been very clear that ethanol is a desirable fuel for them. Given that they've got significant coal, will they look at additions to that potentially they could longer term. But we look today at the price point of our technology, the environmental benefits that come with a higher octane and the lack of need for infrastructure changes. It gives them a direct reduction in gasoline import, so ethanol they’ve clearly said is a preferred option today. Most countries like Indonesia will look for as many different alternatives as possible. There's not going to be just one solution but we think [TCF] will be part of any solution in Indonesia.

Steven Sterin

We are not aware of any activities, I think that's your question Joe to go on and try to bring a methanol for fuel.

Jeff Zekauskas – JPMorgan Securities, Inc

Okay, good. Thank you very much.

Mark C. Rohr

Thanks, Joe.

Jon Puckett

Kevin, let’s move to the next question.

Operator

Our next question comes from Nils Wallin with CLSA.

Nils Wallin – CLSA

Thanks for taking my question, question about China’s plans to build around 20 or so methanol (inaudible) plants. Curious as to what your view would be and how that might change the cost structure for your acetic acid plants there in Nanjing?

Mark C. Rohr

Well I’m going to start this and Doug has been here. I think the trend is going to be for rising methanol, increasing methanol pricing in China today its $360 to $370 a ton and there are some views that it can push up higher than that. You can produce an ethanol in low cost price and ship it for about $60 a ton from anywhere in the world. So I’m not sure what, how high it’s actually going to go. We expect that ethanol is going to go higher and that puts a little bit pressure on acid and roll through a little bit higher acid pricing we think.

Doug, do you want to say?

Doug Madden

Nothing to add to that.

Nils Wallin – CLSA

Okay, thanks. And then just on your proposed methanol plant in Texas I know not exactly configure but someone in the space is just into a long term natural gas contract for their proposed plant. What type of interest are you seeing from the ENPs to be able to do a long term gas contract for Clear Lake plant?

Mark C. Rohr

It’s an option for us as well.

Nils Wallin – CLSA

Great. Thanks very much.

Mark C. Rohr

Thanks a lot.

Jon Puckett

Thanks, Nils. Kevin let’s move the next question.

Operator

Our next question comes from Frank Mitsch with Wells Fargo.

Frank Mitsch – Wells Fargo

And best wishes on your paying retirement Doug.

Doug Madden

Well, thank you, Frank. Appreciate it.

Frank Mitsch – Wells Fargo

You know, I know earlier Mark you were saying that I see the gas operating rates were in the low to mid 70s, can you recap were they where in the fourth quarter, where you saw them through the month of January? And whether you’re actually running your Singapore plant, what operating rates you’re running that Singapore plant at right now?

Mark C. Rohr

So Frank, let me try to walk you through. You said fourth quarter and where they were, not any kind of appreciable difference from where we were. Typically this is the industry and the business where you see in October, November little bit of a pull back in December on those rates, but I think market at mid-70s today about the same price. So frankly, if you look at the margins, that’s about equal to where they are now. So no significant difference and the assumptions going forward I think baring through the turnaround season for Q2, Q3 our assumptions is that it’s a fairly stable environment. Your second question Frank was about Singapore?

Frank Mitsch – Wells Fargo

Right.

Mark C. Rohr

Yeah, so we are running Singapore today consistent with the way we did in the fourth quarter. I think we shared with you in the past that as we run that unit, we run at based upon demand, based upon the underlying market needs and so it continues to, it continues to operate at this point, right now in the same 24X7 cycle and I won't speculate about the future.

Doug Madden

We love to speculate about the future, why not step out there.

Frank Mitsch – Wells Fargo

And just following up on the equity income line, it kicked up obviously nicely year-over-year and you mentioned that it was you had a turnaround in your earlier period, but however it also kicked up nicely sequentially. What should we be expecting out of your equity income earnings as we progress into 2013?

Mark C. Rohr

There is two items to keep in mind you look at equity earnings year-over-year and this quarter in particular. First of all, there is $22 million of earnings in there that relate to some debt forgiveness to one of our affiliates that is on the GAAP P&L, but we excluded it from our adjusted EPS. So that takes you to 79 million, 80 million down to about 58 million. So you are up about $10 million year-over-year, and that's principally driven by the fact that we have a turnaround in one of our Asian joint ventures in the fourth quarter of last year.

So I would say if you look at equity earnings excess to what kind of running at a normalized level, and as we’ve said we expect our equity affiliates to show a similar type of growth as we see in our business, particularly in AEM and consumer specialties, which is on the cost size you'll see accelerated growth as a result of the expansion as well as what we talked about earlier, which is the consolidation of our manufacturing footprint. So I think you adjusted us to items and have a normal world trade on that.

Frank Mitsch – Wells Fargo

Thank you so much.

Jon Puckett

Thanks, Frank. Kevin, let's move to the next question.

Operator

Our next question comes from Hassan Ahmed with Alembic Global.

Mark C. Rohr

Hassan, you there?

Hassan Ahmed – Alembic Global Advisors

Hi there, can you hear me?

Mark C. Rohr

Yeah.

Hassan Ahmed – Alembic Global Advisors

Okay. Question about the clearly methanol facility. In your prepared remarks you essentially talked about how you’re continuing negotiations with potential partners and you expect maintain to be wrapped up by 2013. And almost shortly thereafter by mid-2015, you expect construction to be complete. So I guess my question is two fold. One is from these remarks it seems there really aren't any plus A delays associated with EP&C where co-construction work (inaudible) particularly keeping in mind the slug of new be at methanol, ethylene and the light capacity coming online that's one part. And the second, I guess question is that are you seeing or beginning to see any capital cost inflation out there as well.

Mark C. Rohr

Great question. So, we’re moving towards the conclusions on negotiations, and the parties are talking with the respective Board, so we think we’ll be in a position shortly to be more defendable about partnership and what we’re doing there. The primarily system that you called out are underway and the State of Texas it just takes a water to work through that process.

We don’t anticipate a problem that we’ll actually begin construction and begin real detailed challenge in here, we’ll actually order equipment and things like that. Before we have the final permits, we just can’t break ground until we have the permits. We share our view that even though it’s the end of the year for final permits it’s not a huge delay and for impact on the – on the project.

Regarding the inflation, we actually ahead of the curve a bit. So we’re on the other side of that curve, we’re getting excellent pricing on big equipment and raw materials, because those are kind of is there a shop something running and so we’re early – an early entrance for there – for that process.

So you are right in saying it’s going to come, but I think we’re going to be on the some of that way and not behind it.

Hassan Ahmed – Alembic Global Advisors

Very good, thanks so much, Mark.

Mark C. Rohr

Right thanks.

Jon Puckett

Thanks, let’s move to the next question.

Operator

Our next question comes from Rob Koort with Goldman Sachs.

Robert Koort – Goldman Sachs

Good morning, Doug, and thanks for the new format on the conference call. Obviously we like to have questions and Mike does a night before to look at everything, so appreciate that.

Doug Madden

Thanks, Rob.

Robert Koort – Goldman Sachs

My questions a couple around the Indonesian opportunity, and I guess specifically the after meeting with you guys, the industry minister there was suggesting that you guys would spend $2 billion over the next several years. So, what I’m wondering is that what you committed to, and if so what does that get you? And then is it reasonable still from your initial agreement with Pertamina to expect production by the end of ’14?

Christoper W. Jensen

Yeah, I think all in project cost is going to be $2 billion-ish maybe little more north of $2 billion, and be mindful that you’re going into Indonesia in early, starting from scratch to build the process. Our piece of that would be a hard cut if you would think of that, and I think the numbers we've been around are $600 million-ish and we have a fraction or a portion of that, so our lower a much little capital number and returns on that a very good. Again it's definitely a possible, because of the great economics associated with coal that are available in Indonesia.

I think what we're saying is by the end of this year, the belief is we get your point and say we're doing this project, we're seeing ahead. But if you look at project completion schedule, we don't have a number on that, so I think you’re looking at 16 or 17 to be up and running.

Mark C. Rohr

Yeah, we typically said, I think it's about 30 months from our approvals to get these projects is running about...

Robert Koort – Goldman Sachs

Okay.

Mark C. Rohr

In this space what we've done so far is we've identified three sites and the team is ready to go out and steady this side. We've done a broad permitting process, but we have to go far specific from this, and that's what we are kind of in the debate process with Pertamina and the Indonesian government.

Robert Koort – Goldman Sachs

Is there any way to shift Singapore see the chemistries and output down to Indonesia to speed up the process or is it really count on home baked coal there to make it work?

Mark C. Rohr

Not right. When you could do, I guess academically you could do it, but it wouldn't have a lot to the project, it wouldn't reduce the project online very much because you still need to build ethanol, you still need to build all the infrastructure, you still need (inaudible). So I think what that gives us is going to be Indonesian project.

Robert Koort – Goldman Sachs

And then if I could as Mark a question, I notice the U.S. Court of Appeals recently gave little bit of stiff arm to some of the cellulosic biofuel mandates, is there any small chance, way of hope that something could happen for color gas based ethanol in the U.S. getting a better shot at the table?

Mark C. Rohr

Bob, I think 2013 is clearly going to be a year where the Renewable Fuel Standard has a lot of debate. What I can say is that we are part of that debate. We’ll continue to be a part of that debate. We'll see how things go as we move forward, but I'll say the same thing that we’ve said for a while now which is changing any law and then maybe this law in particular is very challenging, but it's clear it's going to be under scrutiny during this session.

Robert Koort – Goldman Sachs

Great, thank you.

Mark C. Rohr

Thanks a lot.

Jon Puckett

Thanks a lot. Let’s move to the next question, Kevin.

Operator

Our next question comes from Vincent Andrews with Morgan Stanley.

Mark C. Rohr

Vincent, you there?

Vincent Andrews – Morgan Stanley

Hello.

Mark C. Rohr

Yeah. We got now.

Vincent Andrews – Morgan Stanley

Sorry about that. So quick question on the Nanjing ethanol facility and the commercialization effort. Can you just help us understand sort of what are the logistics or sort of the gating events that are going to roll through that ramp up whether it's consumer relationships or just a timing of bringing the plant out, what are the specifics to drive that?

Mark C. Rohr

Well, I mentioned in the mechanical completion so-called that July, then you've got commissioning and start-up, which is that the time, the team is out today meeting with customers all over China. We are segregating those customers from between those that are spot bars and those do a lot of contract position, we're looking at regional pricing and net backs are available and moves around what in the way you were in China. We're looking at the industrial segment that the ethanol has consumed in to decide where we want to put our volume. And so that is the process we’re going through. We will start, we’ll have those contract positions finalized and still have the points coming up that we will be starting to move material to the consumers that provides us the best net back. Vincent, does that answer your question?

Vincent Andrews – Morgan Stanley

Yes that’s exactly, what I wanted to know. And then this is a follow-up on Clear Lake. It sounds like you guys are very much in the direction of going forward with the construction of new facility. So there – would you say it is a very low probability of not putting capital in the ground and step signing some type of new contract?

Mark C. Rohr

Yeah. That’s what – it is a low probability.

Vincent Andrews – Morgan Stanley

Okay. Thanks very much.

Mark C. Rohr

Thanks Vincent.

Jon Puckett

Thanks Vincent. And Kevin let’s move to the next question and we will have this be the last question.

Operator

Our next question comes from John Mcnulty with Credit Suisse.

Mark C. Rohr

John, you there?

John Mcnulty – Credit Suisse

When we look at the pricing and utilization rates year-over-year they haven’t changed all that much and yet Singapore is up and running now and you would shut it down around this time last year. So I guess I don’t exactly understand what change maybe you can help us to understand why Singapore is running, why it actually make sense in profit wise, what it may be contributing for you?

Mark C. Rohr

Let me, I will take a shot at this and then Steven can jump in. John, if you kind of walk away, I think about it remember when you talked about last year at this time Q4 year-on-year, if you recall that as we went into the quarter we were still – we were coming off of a very strong third quarter going into the fourth quarter, we were strong in October and then we saw decelerating that occurred in November, December which turned to be the precursor of I think what certainly we experienced in 2012. The fact is when you look at pricing and margins across the year they probably moved up and down within a range. But as we saw the second half a little bit more of the volume that I’ll say firmed up that’s in a context that we saw a little bit stronger second half certainly than we did the first half. We ran, and as I said before we run Singapore based upon the underlying market demand and what we did see through the course of, I’ll call it mid-to-later second half is, South East Asia got better, better relative to the first half, not better relative to a norm.

The other part of this is we operate a global footprint. We’ve got to balance our system of globally as well for the highest efficiencies, based around supplying around the world. So there’s element of that is well that goes into the plan. So, margins that you’re seeing today are relatively similar to Q4 last year, frankly, with what we saw through the year, with the weaknesses in South East Asia, and with Europe, we feel actually pretty good about where we are and where we – whether that’s norm. And I think also suggest that at least in our minds may be that’s the bottom.

John Mcnulty – Credit Suisse

Okay great, thanks for the usual color, I appreciate it.

Operator

And now let’s turn the conference back over to Jon Puckett for closing remarks.

Jon Puckett

Thank you everybody for your time and interest in Celanese, we’ll be around to answer follow-up questions later today.

Operator

Well, ladies and gentlemen, that concludes today’s presentation. You may now disconnect. And have a wonderful day.

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