Celanese’s acetate tow sales will slightly decline over the long term

Business Strategy and Outlook

Celanese is the world’s largest producer of acetic acid and its chemical derivatives, including vinyl acetate monomer and emulsions. These products are used in the company’s specialized end products or sold externally. Celanese produces these commodity chemicals in its acetyl chain segment (roughly 45% of 2022 pro forma EBITDA including acquisitions), which primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. Celanese’s Clear Lake, Texas, plant benefits from a cost-advantaged feedstock from low-cost U.S. natural gas. The company plans to expand acetic acid production capacity at Clear Lake by roughly 50%, which should benefit segment margins thanks to lower unit production costs relative to other geographies. The engineered materials, or EM, segment (45%) produces specialty polymers for a wide variety of end markets. Celanese is investing in the expansion of this business through acquisition. The company completed the acquisition of Santoprene in late 2021 and announced plans to acquire the majority of DuPont’s mobility and materials portfolio in a deal that should close by the end of 2022. Both deals add complementary products to Celanese’s existing portfolio. After the DuPont acquisition closes, the EM segment will generate the majority of revenue.

The automotive industry will account for the majority of EM segment revenue, while other key end markets include electronics. EM uses commodity chemicals, such as acetic acid, methanol, and ethylene to produce specialty polymers. Celanese should benefit from automakers light weighting vehicles, or replacing small metal pieces with lighter plastic pieces. Celanese should also see growth from increasing electric vehicle and hybrid adoption, as the company will sell multiple components specific to these powertrains. By 2030, the two thirds of all new global auto sales will be EVs or hybrids. Acetate tow, which is Celanese’s smallest segment, produces acetate tow primarily for cigarette filters. Cigarette sales are in secular decline across most countries, and Celanese’s acetate tow sales will slightly decline over the long term.

Financial Strength

Celanese is currently in excellent financial health. As of June 30, the company had around $3.8 billion in debt and $0.8 billion in cash. The net debt/operating EBITDA ratio of around 1. Celanese is undergoing a portfolio transformation, exiting legacy joint venture deals and acquiring new assets to increase its engineered materials portfolio, such as the Santoprene business from ExxonMobil. To continue this transformation, the company plans to acquire the majority of DuPont’s mobility and materials portfolio for $11 billion in cash, which will be largely financed through debt issuance. As a result, Celanese will carry elevated leverage ratios over the next several years from the time the deal closes, which will be the end of 2022. However, management will likely use excess cash to pay down debt. As EBITDA grows and debt levels fall, Celanese will be able to restore its balance sheet health within a few years of the deal closing. The cyclical nature of the chemicals business could cause coverage ratios to fluctuate from year to year. However, with the Santoprene and DuPont mobility and materials acquisitions, the more stable downstream engineered materials business will become the majority of total profits. As a result, Celanese should still generate positive free cash flow well in excess of dividends even in an economic downturn.

Bulls Say’s

Celanese built out its core acetic acid production facilities at a significantly lower capital cost per ton than its competitors thanks to the scale of its facilities (1.8 million tons versus average 0.5 million tons).

Celanese should benefit from producing an increasing proportion of its acetic acid in the U.S. to take advantage of low-cost natural gas.
Through acquisition, Celanese will transform the engineered materials business into a premiere chemicals business that will create value for shareholders.

Company Profile

Celanese is one of the world’s largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The company also produces specialty polymers used in the automotive, electronics, medical, and consumer end markets as well as cellulose derivatives used in cigarette filters.

(Source: MorningStar)

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