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Morningstar | Celanese Will Benefit From Growing Its Low-Cost Acetic Acid Production

Celanese is the world's largest producer of acetic acid, which is used in the company’s specialized end products and is also sold externally. The company produces the chemical in its core acetyl chain segment (around 50% of 2018 EBITDA), which primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. The company 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% while closing higher-cost production capacity in Asia, which should benefit segment margins thanks to lower average unit production costs.The engineered materials segment (nearly 40% of 2018 EBITDA) produces specialty polymers for a wide variety of end markets. The automotive industry accounts for the largest portion at around a third of revenue; other key end markets include construction and medical devices. 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 replacing small metal pieces with lighter plastic pieces, a trend that should continue as automakers move toward more lightweight vehicles. As such, the segment’s volume growth should continue to outpace global auto production. By maintaining pricing amid declining input costs, the segment expanded EBITDA margins from 30% in 2014 to around 40% in 2016. However, the higher segment margins are unlikely to hold in the long term. While we expect competitive pressures will drive lower prices, Celanese’s low input costs should still allow for midcycle margins in the low 30s.The acetate tow segment produces acetate tow primarily for cigarette filters (slightly above 10% of 2018 EBITDA). Cigarette sales are in secular decline across most countries and, accordingly, we expect Celanese’s acetate tow sales will slightly decline over the long term.