Celanese produces the chemical in its core acetyl chain segment (roughly 50% of EBITDA), which primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. It produces acetic acid from carbon monoxide and methanol, a natural gas derivative. Celanese produces its own methanol at its Clear Lake, Texas, plant, which benefits from access to low-cost U.S. natural gas. The company recently announced that it will expand acetic acid production capacity at Clear Lake by roughly 50%, which should benefit segment margins thanks to lower average unit production costs.
The engineered materials segment (around 40% of EBITDA) produces specialty polymers for a wide variety of end markets. This segment uses acetic acid, methanol, and ethylene to produce specialty polymers. Celanese and other specialty polymer producers have benefited in recent years from automakers lighweighting vehicles, or replacing small metal pieces with lighter plastic pieces. Celanese should also benefit from increasing electric vehicle and hybrid adoption, as then company makes battery separator components. By 2030, we forecast two thirds of all new global auto sales will be EVs or hybrids. Additionally, Celanese sells products used in electronics and “Internet of Things” technologies, which provides another area of growth for the company.
With growing EV adoption and increased sales of Internet of things technologies, Celanese is well positioned for outsize engineered materials’ volume growth over the next several years. 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 so we expect Celanese’s acetate tow sales will slightly decline over the long term.
Financial Strength
Celanese is in good financial health. As of March 31, 2021, the company had $3.6 billion in debt and around $0.8 billion in cash. A net debt/operating EBITDA ratio of 1.8 times. Celanese is undergoing a portfolio transformation, exiting legacy joint venture deals and acquiring new assets to increase the company’s engineered materials portfolio, such as the Santoprene business from ExxonMobil. The company will increase its debt as a part of this acquisition. However, we generally expect the company’s balance sheet and leverage ratios to remain healthy as Celanese should generate enough free cash flow to meet its financial obligations. The cyclical nature of the chemicals business could cause coverage ratios to fluctuate from year to year. However, Celanese should still generate positive free cash flow well in excess of dividends in 2021.
Core Acetic Acid Production
- Celanese built out its core acetic acid production facilities at 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.
- The engineered materials’ auto business should grow more quickly than global auto production because of greater use of these products in each vehicle.
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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