Q4 2021 Celanese Corp Earnings Call
Greetings welcome to Celanese is fourth quarter 2021 earnings call and webcast.
At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
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Please note this conference is being recorded.
At this time I'll now turn the conference over to Brendan <unk>, Vice President of Investor Relations. Brendan you May now begin.
Thank you, Rob and welcome to the Celanese Corporation fourth quarter 2021 earnings Conference call. My name is Brandon <unk>, Vice President of Investor Relations and with me today on the call are Lori RARA Kirk Chairman of the Board and Chief Executive Officer, and Scott Richardson, Chief Financial Officer.
Celanese Corporation distributed its fourth quarter earnings release via business wire and posted prepared comments about the quarter on our Investor Relations website yesterday afternoon. As a reminder, we will 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 the press release as well as the prepared comments.
<unk> 8-K reports containing all these materials have also been submitted to the SEC because we published our remarks yesterday. We will go ahead and open the line for questions. Rob. Please go and open the line.
Thank you at this time, we'll now be conducting a question and answer session.
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So that we may address questions or was there any participants as possible. We ask that you limit yourself to one question and one follow up.
One moment, please while we poll for questions.
Thank you and our first question today comes from the line of John Roberts with UBS. Please proceed with your questions.
Thank you.
You mentioned youre not expecting another shutdown at Nanjing or any disruptions from the Olympics.
Think China can get from a zero COVID-19 strategy to an endemic COVID-19 environment like the U S and Europe without a lot more disruptions.
The interesting question, John we're really not and we said, we werent expecting any disruptions that was really around energy curtailments are things like we saw in the October time frame also.
Also with Chinese new year than Beijing.
A little bit differently than we'd seen prior to 2020, we're not seen as many total shut downs during that period as China.
Worried about their economy and what's the C recovery. So we model then only mild seasonality across our businesses for Chinese new year's and and for the Olympics.
Covid question is an interesting one I'd say COVID-19 seems well under control in China at least from officially reported but we would also say our experience in our plants and our offices as Covid is under control and I think you've seen some recent comments by the Chinese government, where they are starting to back away from their zero Covid Strat.
<unk> and more towards managing an endemic so I do believe I you know I think the outcome of all of what I've just said.
My personal belief is that we will see a fairly smooth transition in China as they go as as much of the rest of the world towards more of managing is endemic versus stick.
Sticking with their zero Covid policy Okay.
Could you talk a little about the M&A outlook, Santa <unk> appears off to a good start in.
But what are the areas of Sonys that you're most interested in expanding use it another polymer like Santa <unk> or is it maybe something in Asia. After the poly plastics transaction or maybe something in chemicals like the Redisburse polymers deal you did.
Yeah. So look Santa <unk>, we are really excited about San appraise the transition went really well over December <unk>.
Even just one month and we're already starting to see delivery us from synergies that are ahead of schedule and we're excited about what we see from the product and where we see the possibilities for cross selling as well as new applications for <unk> and of course, we're really excited about not just the assets we acquired but the people we.
We acquired and the great job that they've done really coming into selling needs and becoming part of that selling these families right. Santa <unk>. We think it's been a great success, so far and we anticipate it just gets better from here.
Makes us excited about our future M&A as well and our ability to continue to do larger and larger M&A.
In answer to your question about what type of M&A I would say, yes. We are looking at everything that you mentioned, we're looking at additional polymers a different additional geography, we are looking at acquisitions across both engineered materials and the acetyl chain. So I would say our linzess is still fairly wide open in terms of the types of M&A.
That we would consider and in terms of size all the way from bolt on to transformational. So we think it's quite an exciting time for us for M&A.
Not only do we still have the financial capability to do a significant amount of M&A, but we also believe we have the management and employee bandwidth and capability and again, especially with some of the acquisitions, we've done with the low tax in Santa bring bringing even more talent.
To take on additional M&A going forward. Thank you.
Okay.
Our next question comes from the line of Jeff Zekauskas with Jpmorgan. Please proceed with your question.
Yeah.
Thanks very much.
In Europe in your script describing M&A.
You said that you are considering a wide range of opportunities within your desired investment grade rating.
Scott.
Indicate that your.
Acquisition aspirations are more modest rather than transformative.
I wouldn't make that assumption that if you look at our actual financial capability. If you look at.
Cash the free cash flow, we had this year at 1.3 next year will be at $1. Four if you look at our cash flow. We actually think we have a very large capacity to take on debt. We're very low levered right now we can take on significant debt and we could take on.
With the cash flow, we have we could pay off that debt. So I wouldn't I wouldn't say that means our RMB.
Our ambitions are modest I would say actually we are in the best time in our history to actually take on any range of M&A and still do it within our investment grade rating.
Okay, great. Thank you very much.
Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your questions.
Yes, good morning.
First question is just on the asset yields change when you look at the different steps from Cedric asked it down to them and some of the other derivatives, where do you see the supply demand being the tightest over the next couple of years and where do you think either you or the industry.
Make some announcements around new capacity in that chain over the next couple of years.
I wouldn't say the entirety of the chain is pretty tight right now just look at utilization acetic acid had been pretty close to a 100% now that did moderate a little bit in the fourth quarter, but still 85% to 90% utilization in acetic acid.
We see that being about the same this quarter and maybe tightening a little bit as we go through the year, but we do have some new capacity coming on sometime in the next few months with the second phase of Y E Azlon Chi.
<unk> is very tight I would say Bam is been around 100% utilization for some time now.
It was a little bit better in the fourth quarter, but again in first quarter, we see it being really tight again as we have the.
Outages, especially in China for turnarounds as well as the maintenance downtime. So you know I think <unk> is going to continue to be very tight we've announced some expansions and Bam theres been a few other ones, but I think the demand and Bam continues to grow quite rapidly I think if you go into our downstream products like emulsions in RTP.
I would say the demand is huge right now there are some really interesting things happening in the market now around increased energy efficiency requirements and we make some systems that are made of if you think about kind of five layers of emulsions and RTP powders to make thermal infill.
<unk> systems for putting on the external externals of building and so, especially in Europe , where just see a demand quite frankly that the industry can't keep up with right now.
I'd say those utilization rates are definitely at a 100% and staying that way. So I do think we'll see some expansion I think as we as we've called out before acetic acid any major expansions will take a while were at least four to five years out from any other expansions there other than our own their light capacity that will come on first half of.
2022.
2023, sorry, I get the wrong, great year 2023.
And I think we called out some Bam expansions, we've called out some VA expansions, we're making we are looking to expand RDP as well and I suspect, we'll see others in the industry doing so but I will say you know it's still into a very tight market and I think this is a market. These are markets that will all continue to be very tight for the next I'm going to say.
At least four to five years.
Great. Thanks, and then maybe as a follow up.
Since you did at acetic acid from kind of all three of the carbon starting points can you talk about what's happening to the cost curve for acetic acid.
With all the different energy price moves we've seen in the last half year, what will 22 look like different in 'twenty, one from a cost curve standpoint.
I think if you look at the last year, we've seen everything go up I mean natural gas has gone up including in the Gulf Coast of the U S. Coal has gone up in China oil has clearly gone up and so although everything has gone up and with that we'd seen methanol prices going up I would also say it hasnt changed the relative order of attractiveness.
U S Gulf Coast natural gas, even at $6 a million Btu as we saw during times in the fourth quarter is still the most attractive source of raw materials for our CLEC assets.
Coal oil kind of stay almost imparity and it goes back and forth, but I'd say there they're about the same usually.
And but still significantly more expensive than acetic acid. So I don't really see the priority I mean Gulf coast production remains the priority followed by then Nanjing in Singapore for Us and I don't I don't really see that changing and I think what that means is even with higher.
Natural gas prices.
The the marginal capacity in acetic acid is coming out of China, which is coal price youll contingent opinion to see prices that support good margins in the acetyl chain.
As we go forward over the next few years, yeah definitely only going to add is I think what has changed from a relative basis is freight and logistics costs and.
With our network of having the three assets that just gives us the ability to really be well positioned to meet customer needs around the world. So while the costs for others is moved up who only have one plant. Our network just gives us a nice advantage there to take advantage of the fact that those logistics costs have moved up pretty rapidly.
Great. Thank you guys.
Thank you.
Our next question is from the line of Bob <unk> with Goldman Sachs. Please proceed with your questions.
Hey, Good morning, this is actually Mike sitting in for Bob This morning.
I was wondering in your prepared.
You've kind of talked about an expectation of acetyl industry pricing moderating.
First quarter was one.
If you could give us.
Perhaps maybe a bit more color around the magnitude of moderation you may be baked.
Baking into your guidance.
Sure.
We call out moderation in the first quarter and really throughout the remainder of this year really assuming we don't see the amount of supply disruption that we had in this year I mean this year between the <unk> and the free some large turnarounds in the U S. In particular, then the curtailment in China in October we had.
Quite a lot of disruption in the supply chain for acetic acid and with that it tends to keep prices higher with the uncertainty that's out there on top of what's been very robust demand for acetic acid in acetyl chain products. This year. So as we go into 2022 and we saw it in the fourth quarter. We saw after the peak in October .
Driven by the curtailments in China, and kind of more of the perception of the curtailments in China. We saw very rapid moderation through November and December and we expect that first quarter is actually probably kind of flattish with where we ended the year, but then we do expect further curtailment as we go through the rest of the year.
Assuming no big supply disruptions, obviously, if we get into a period, where we have major supply disruptions, we could see some price support again for higher acetic acid prices, but that is the basis for our assumptions this year.
Okay. Thanks, and then just as a quick follow up if memory serves me. There typically is like a seasonal rebound in pricing has come in at second and third quarter do you anticipate that or do you see the moderation continuing through what has historically been a seasonal.
Rebound.
What I would say Mike is usually we see a seasonal softening around Chinese new year's.
As production.
As consumers are shut down in China during that period of time and a lot of factory shut down for a couple of weeks of folks get station.
We're really we're not putting much of that in our forecast for fourth quarter, because we are.
We have a minor amount of seasonality that we've put in first quarter. So as a result of not see much seasonality in first quarter I wouldn't expect much rebound in second quarter and third quarter, just because we have not baked in much of a dip in the first quarter.
Okay. Thanks, a lot.
Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.
Hey, good morning.
Laurie just curious in the third quarter prepared remarks, you talked about 23, and I know 23 is more of a guideline.
Versus specific guidance at this point, but.
Do you still feel feel good about.
Sort of that $15 23 and growth beyond that.
We do Mike.
We've called out greater than $15 EPS this year and for those of you who've done the math and you probably realize that our numbers. If you add them up chemical a little bit closer to 16, if you look at the call what we've called out for individual businesses.
Just trying to be prudent with the 15, we're feeling good about 2022, and what we see there if conditions continue.
This then we start seeing improvement in supply chain and some of those things obviously are number could move well above 15% for 2022, and therefore, even with more moderation in asset sales in 'twenty three.
<unk> offset by growth in engineered materials in 'twenty, three we feel really good at that greater than $15 number for 2023 and for the years beyond.
Got it and then I.
Yes for <unk> you are looking for another for for a good year and organic volume growth again.
Any changes to your sort of view on auto I think it did come in a little bit better as you noted in the fourth quarter and.
And how does that affect your outlook for <unk>.
How is that embedded in your outlook for 'twenty two.
Yes, great question.
Really for automotive I would say Q4 didn't come back as strongly in automotive as most of the tiers and other people predicted it did come back a little bit in Q4, but not nearly to the extent we expected I mean, if you just look at Q4 of this year.
It's still well below Q4 of 'twenty 2020, so theres still a lot of recovery to come in auto now we are not in our.
Modeling, we're not projecting as much recovery in auto is maybe IHS is so if IHS is right, which we hope they are that will be additional upside for us. We're assuming actually auto volumes are pretty flat in 2022 versus 2021 now we continue to increase content into autos ourselves in auto.
Continue to go up but we are projecting fairly flat total auto builds.
But again that leaves us upside if we do see autos coming back more strongly like IHS is predicting.
Got it thank you.
Next question is from the line of Ghansham Panjabi with Baird. Please proceed with your question.
Thank you and Hello, everyone.
Alright, maybe you're just picking up on the comments on China as you sort of think about <unk> and the acetic acid and Bam pricing that you referenced in your prepared comments and the region is that just realizing there is a lot going on is that just a function of the economy, having slowed in China with real estate et cetera.
And.
That continues into the first quarter and then just your view in terms of the recent stimulus measures that have been announced.
And the country, how do you see that sort of playing forward for celanese.
And the first quarter, you've given very specific guidance for <unk>, but just on the acetyl chain beyond that would be helpful as well.
Yes, if we go back to fourth quarter. It was really an interesting phenomenon. If you look.
In October we saw coal prices run up due to some geopolitical things that were going on with that we saw methanol prices run up and without and then we had the curtailments being announced in China.
And I think there was a huge concern that acetic acid plant Bam plants, we're going to shut down and so we saw price shoot up to <unk> hundred dollars per metric ton.
That was a very short impact, though is kind of a one week phenomenon and then when people realize not much acetic acid was being shut down we saw acetic acid prices come down back to that $8 50, and then even into the 750 range as we moved into the end of the year.
Now that's still a good pricing for acetic acid, we haven't really seen much demand and much softening in demand.
In China, so despite the things we read about the economy that construction slowdown we haven't seen much softening in demand in China, and that's why we're saying really for first quarter. We think we'll probably going to be fairly steady at about that same range of level that we saw at the end of the fourth quarter and I think as we go through the rest of the year we're <unk>.
Going out moderation and again, we're just calling that out on assuming.
Supply stabilizes throughout the throughout the world in the supply chain and demand remains fairly steady and that really is our outlook for China.
To your other question.
Even even at lower economic growth.
A lot of that is coming in high Tech it's coming in.
More social media platforms, and things like that that China's intentionally wanting to shut down we're seeing China clamped down a little bit on real estate.
And some of the speculative stuff that was going on in China, but we're not seeing much impact on industrial we're not seeing much impact on consumer demand and we're not seeing much impact even on a lot of the construction segments that we're in.
Like people redoing buildings, and adding installation and all those sorts of things. So our outlook is still pretty robust for China throughout the entirety of the year in 2022.
Okay very helpful. Thanks, and then on the EBITDA margins down somewhere between 506 hundred basis points below.
<unk> I'm sorry.
Yes, 18, and 19 levels I know the mix has changed a bit but as the previous prior high watermark still real estate sort of pro forma for the acquisitions, including Central Greene.
Yeah.
Look our expectations for acquisitions is the same.
Just given the nature of the business when we got San frame that came in with a little bit lower margins, but we're very confident that as we work through the year as we see recovery in auto as we have the chance to take commercial actions around pricing and other things with Santa praying that we'll be able to get them up to the expectation.
As we have for the rest of our business and that would be our expectations for any other acquisitions that we look at that we get back to similar levels of margins, Yes, and I think ghansham with what we saw from a run up in energy costs broadly across the <unk> portfolio. We knew it was going to take some time and as we called out in the prepared remarks, we do expect to get ahead of that here.
<unk> by the end of the first quarter and then you should see margins improve here in both with Santa printing in the base business in the second half of the year.
Awesome. Thanks, so much.
Thank you. Our next question is from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your questions.
Good morning.
Laurie I'm just wondering if you could talk through the energy Spike in Europe .
As energy costs, there quadruple or quintuple.
How are you dealing with that in practical terms.
With regard to efforts to recover.
How much might be permanent price increases versus surcharges, how should we think about the energy pig moving through the Python as the year progresses.
I Love the way you put that we.
We haven't talked about it in those terms, but that is what it feels like right now.
Spikes, we saw in third quarter, and then the even greater spike that we saw in fourth quarter, a really unprecedented as I think was was pretty clear.
Clear from the chart and I mean, it's been really volatile.
<unk>.
Typically if you look.
We don't do we do some hedging around energy prices in other parts of the world and even in Europe , but we really do it to get security of supply we do it to reduce volatility we often do hedges in the fourth quarter and first quarter and the winners when we know we're more likely to get price increases.
With what happened in Europe . It was so unprecedented and so came at such a fast rate, we really didn't have that opportunity. It also that's why we had to pass through those cost to our consumers we chose to do it through a <unk>.
Surcharge because.
To reflect to our customers. It is temporary and it is based on an unusual set of events.
Look no one likes a price increase but I think that by doing it as a surcharge our customers understand that this is a temporary measure and we're really not seeing any tangible loss of volume from.
From customers.
Because everybody is experiencing these price increases and to some of the supply logistic constraints right now make it really hard for people to source from other places, but as you know as we go forward. We do expect prices to moderate again, we are taking some steps to try to protect ourselves in the future from these kinds of run up.
And what some of the price increases we've had that were just price increases based on other raw materials, we will see the benefit of those for some time to come because these are value priced items that those price.
Increases will stick for a while the surcharge well go away when the energy price goes away, but as we called out in our remarks, we do expect with the other with the increases we've had to add on the surcharges that sometime in the first quarter will be recovering all of the additional energy pricing that we've experienced.
Okay. Thank you for that and then secondly.
I wanted to ask about your range of $15 plus or call. It 15% to 16 for 2022, just recognizing that it's a really dynamic external environment with lots of dislocations.
Just broadly what do you think are the two or three biggest swing factors that could allow you to over deliver or under deliver versus that target level.
Well the number one factor and it's what we saw this year is acetic acid pricing and asset value chain pricing I mean, while we can do a lot with commercial actions and with the agility and kind of the.
Commercial expertise of our teams and we do that by managing volumes around the world and up and down the chain.
Based pricing still matters and so to the extent, we see supply tightness, whether they be from weather events, whether they be from unplanned shutdown supply tightness.
In a market that is that let's say, 85% to 90% utilization.
Flex very quickly and increase prices in the acetyl chain. So to the extent that we have more disruption and volatility in the acetyl chain market. This year, we'll see pricing go up and that would give us additional uplift on that outlook for the year inflation.
Inflation is obviously an issue as it supply chain and so we're assuming the supply chain restrictions, we see this year moderate over the course of the year, we're not assuming a perfect, but we are assuming theyre starting to moderate over the course of the year.
We see that not happen that will have some impact but as you saw those numbers are in the tens and twenties of millions in the quarter not hundreds like we would see acetyl pricing.
And then for <unk> I think auto recovery is the big issue.
Again, we've assumed pretty flat auto between 'twenty, one 'twenty two based on chip chip shortages, but if we see that resolved then there is some good upside for engineered materials in there for increased sales into auto.
Perfect. Thanks, so much.
Thank you. Our next question is from the line of Vincent Andrews with Morgan Stanley . Please proceed with your questions.
Thank you.
Everyone.
You mentioned in the prepared comments in the acetyl chain that Youre RDP business.
Volumes were up I think you said, 25% versus the historical peak and that should be shifting more of your mix.
They're in I guess broader emotions.
And 'twenty two so could you just talk to us a little bit about what's happening in RTP that was allowing that volume performance is it something you were doing with the.
New ownership is as the market is it both where's the demand coming from in terms of segments or is it shifting from other products, but just give us a little more color on what's happening there.
Yeah look we've seen very strong demand and pricing from the construction sector, specifically for emulsions and powder, so whether it be paints and coatings are these insulation systems that I talked about earlier, we are seeing very strong demand there and as a lot of countries put in additional energy efficiency.
<unk> requirements or greenhouse gas footprint reduction requirement, we expect that we will continue to see very strong demand continue for emulsions and powders I think what's changed there is with our acquisition of <unk> attacks, which let us get into the RTP market, we've been able to take those assets, we've been able to debottleneck.
Them quickly, we've been able to run them harder because we're vertically integrated we will run them full because we still see the value of the acetic acid, that's going into them coming out is RTP, maybe something that someone who's not vertically integrated would struggle to do.
So we've just been able to run them harder, we've also been able to get.
More I guess I'd say innovative in terms of marketing, our Molson and RTP together as a package, which allows customers and some of these things like the thermal insulation systems to buy a system of products that works for their needs versus having to go source them independently and so commercially.
Thats been a big win for Us and something we think is really going to secure this sector and improve the margins of the sector going forward.
Okay, and if I could just ask a follow up on the auto comments. When you were talking about autos for 2022, Youre, obviously speaking to your own volume and what your expectations are you also mentioned in the prepared remarks about the tiers were doing some destocking in the fourth quarter I just wanted to understand whether was that just sort of typical fourth quarter destocking for <unk>.
Working capital purposes, or was that just a function of they build too much inventory in the <unk> or sorry in 2021 versus.
Chips allow them to do.
Is that destocking done or is that something that could be a feature of this year as well.
Yeah, Great question.
So our belief is we saw really good demand still in third quarter. Despite a low level of auto builds and third quarters and our belief is the tiers, we're continuing to build inventory in anticipation of a really robust fourth quarter with chip demand with chip availability being what it was fourth quarter did come back but not us.
Strongly as everybody expected and then it was year end. So the tiers chose to just pay do some destocking over the quarter. So that they didn't have yearend inventories quite as high we still believe inventories are very low in the tiers and so we don't expect that to be an ongoing phenomenon. We think it was simply a year in <unk>.
I'm Gonna.
We expect to see demand come back come back robustly in first quarter and on through the rest of the year.
Based on improved auto builds but also based on the tiers need to rebuild inventory.
Okay. Thank you very much appreciate all the thoughts thank you.
Our next question comes from the line of P. J <unk> with Citi. Please proceed with your questions.
Yes, hi, good morning loading on Scott.
In China, you and your competitors were impacted but you will control.
And I think dual controllers ended now and they built up their coal inventories in <unk> do the controllers ended.
What does it mean for more accidents production in China do you see that happening.
Yes, I definitely see the ability for that to happen. If we look at the curtailment in China. We lost about 25000 tons of lost production and about half of that was Bam and the other half was a combination of the CD gas it and other derivatives. So.
So that was about 20% to $25 million of loss margin due to that curtailment. So assuming we don't have any curtailment then that's obviously volume that we can produce into.
Into the system.
And our expectation is the same as yours, we don't see any indications we'll have we'll have curtailments this year either.
Okay.
And then Europe has been difficult for many companies as.
Oil prices went up and there was limited pricing.
How is your European operation of holding up in general.
Region and can you just make any comments on what youre seeing going forward. Thank you.
Yeah, I don't think we've really seen any major impact on our business from the increase in oil pricing I mean, as we as we've called out before generally we do better with higher pricing and asset deals that can get pass through immediately it takes a little bit longer and EAM, but generally we do.
Better with higher pricing.
The real the real impact we've had this year has been from natural gas in Europe , and the impact that that's had on specifically our E M operations in Europe as well as our tow operations in Europe , where we just in those contracts don't haven't had the opportunity to pass on the additional cost of natural gas and youth.
<unk> based on natural gas through to the consumer real time, we've had a lag in that pass through of pricing, but I do think P. J. The one thing that we do love is having in region capacity and our assets in Europe are running at a high rate with the supply chain issues and the issues around logistics.
<unk> and product coming in from other regions that has helped.
<unk> be able to sustain and offset some of these increases in raw materials.
Great. Thank you.
Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you good morning, Laurie in the prepared comments you called out some turnaround costs and half appeals in both Q1 and Q2 can you quantify those costs.
Yes, if we look at 2021, we had a total of right around $40 million in turnaround costs and in 2022, we expect that to be about the same.
Last year, it was spread across a wider variety of asset this year, our large turnarounds will be the two we called out we haven't it fairly.
Fairway has a turnaround in the first quarter and then we have a clear lake siddique acid plant turnaround that starts at the end of the first quarter and goes into the second quarter.
Very good and just back to M&A. If you are unable to make a transformational acquisition in EM could you would you ramp up organic spending in that in that business.
So we're still planning on high organic spending I mean, we were planning on $600 million capital.
Next year part of that is completion of the Panther project in the <unk> business, but the rest of the most of the rest of that is really in engineered materials, where we'll be spending about the same amount. We spent for panther as we do some of our expansion projects that newbuild than in China, and will really all parts of the world. So I would say.
The M&A is not having a big impact on our view of organic investment organic investments continues to be our highest return and so we've ramped those projects up as we see our ability to strategically and efficiently deploy capital. So I don't I don't think that we will have it make a difference in terms of our organic investments.
Understood. Thank you.
Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Good morning, Lori and Scott.
A question around.
You guys as sort of relative degree of satisfaction with your upstream integration.
I mean, obviously, we've seen some seismic shifts over the last couple of months.
The European natural gas situation.
The new five year plan presented in China, obviously looking for a significant curtailments.
In coal usage.
As you've sort of seen all of those things does that make you sort of.
We think maybe the integration strategy, maybe that should be more integrated I don't know how you guys are thinking about that with some of these goings on.
Is that I assume you're thinking more about integration in terms of upstream integration Greg into the acetyl chain, yes, Indeed, yes.
But right now we get about week produce about 40% of our own methanol, we kind of like that balance of being able to produce methanol or by methanol, depending where the markets are and what the sources of value are we're pretty happy with that we constantly reevaluate and look at opportunities to.
Go further upstream, but I would say right now we're pretty happy at about that 40% range, where at year end with the methanol expansions, we've already announced this on I mean, thats going to be able to take and help us with some of the growth that we expect largely in the steel chain over the next several years.
Understood understood and just also wanted to revisit M&A.
M&A I mean, you guys talked about considering anything from bolt on to transformational.
Just I just wanted to get a better sense of if you guys have a preference for reference or not for certain regions.
And the reason I bring that up is they seem to be some chunky assets in Europe .
Or are they spending more looking to be acquired I'm thinking in terms of the DSM plastics unit.
<unk> HCM business.
I mean, the question really is you guys have a sizable presence in Europe as is.
Sure.
Would you consider doubling down in Europe would you be dissuaded buyback just regionally how youre thinking about M&A.
Has that I would say I am geographically agnostic I am.
It is all about value for me. So we look at all M&A targets for the opportunities to create value for Celanese I mean, clearly we want it to be a good strategic fit but we really look at synergies and all the other assets aspects of a deal to make sure. It is something that we believe will create outside value.
For Celanese and our shareholders.
Very helpful.
Got you.
Our next question is from the line of John Mcnulty with BMO capital markets. Please proceed with your question.
Yes. Good morning, Thanks for taking my question. So in the acetyl chain you guys demonstrated this this past quarter again kind of ability to flex the global network to take advantage of kind of regional changes in price and what have you I guess, how did you do that given all the freight and logistics constraints that are out there and I guess as those start to.
Alleviate does that give you even more shots on goal or more opportunities how should we be thinking about that.
I think youre right I mean, I think fourth quarter continues to demonstrate the real strength of the business model. We have in acetyl I think there you really see kind of the breadth of our manufacturing footprint being present in three different geographies.
The agility of our supply chain.
It made us really good I would say, even better at adapting to and capitalizing on disruptions of which we've seen a lot. This year and I think the performance of our <unk> team is really impressive. This year. If you look at all of the opportunities we had.
Do not be agile.
<unk> taken advantage of it and created a lot of value for the company. This year I think you see that.
We really focused on China. This year prices were very high but at the very end of the year. The team was able to shift AC sales more to the western hemisphere, where prices held up longer in fact, the fourth quarter. We saw the highest percent of our volume going into the western hemisphere that we have this year it was about a 10%.
Wayne from China to the Western Hemisphere. Similarly, we saw swings out of acetic acid and more into the emulsions and RTP and I think that is the value of what we have with kind of end to end value chain as well as geographic diversity I would.
Look we've had some issues around.
Supply chain logistics and freight like many of them. Unlike many folks have but I would also say our team has been amazingly resilient and flexible in.
Securing chef securing whatever they needed to do and making sure we could move things as we needed to to really maximize the value of that chain.
Like anybody it took us a little bit longer in some cases, two to fill out those value chains, but I would say, we're through that now and and have the lead times in place to really be able to continues to take advantage of that.
Got it.
That's helpful and then maybe a question for Scott.
Around again, the M&A commentary.
And I guess, just given the significant cash flows that you guys had been trailing off maybe more so than some expected.
Can you help us to understand.
Or how much you can stress of flex the balance sheet and still keep the still keep your investment grade rating can you go north of four times is that has that kind of a leverage hurdle. That's doable in your mind just given the strength of the cash flows I guess, how should we think about that.
Well John I mean every deal is going to be unique and different and I think a lot of <unk>.
<unk> upon how much EBITDA, we're buying and then what the makeup of the various.
Assets would be that would be in that type of situations. So I mean I would.
I would say it really depends and I think we are really focused on making sure we generate a lot of cash and Lori talked about synergies being critical.
In any deal and I think depending on levels of synergies, it's going to really dictate what we can do from a balance sheet perspective.
It comes down to cash generation, we feel really good about 2022 at one $4 billion and we think that cash generation with the growth in earnings that we project in the coming years is going to continue to be quite robust.
Fair enough thanks for the color.
Thank you. Our next question is from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your questions.
Hey, good morning, maybe.
Maybe sticking on the M&A topic Laurie.
The comments that you are looking at M&A single chain, we're pretty interesting just given your large market position.
Would this be something more downstream motions or do you think you could consolidate.
If you look at it and then capacity in other parts of the world.
But that's a fair question, Matthew but we do have a large position already in the acetyl chain. So I think as we look at M&A for the acetyl chain it as things more like Eagle attack. So further further downstream in the value chain that is more likely possibility than say any.
Kind of.
Big M&A around the city gas at or some of those those products, where we already have a fairly large position.
Got it and then in the prepared comments I noted that Youre immediately pulled out of the bishop.
G U R plant.
Are there any low cost expansion opportunities here or is it pretty much set at <unk>.
Casey.
There are we have been doing the low cost expansions as as we can our engineers are looking very hard at that obviously <unk> markets have continued to expand and grow at a rate much faster than anticipated. We grew nearly 40% this last year.
And so the expansion that we built in Bishop, which we expected would last US 12 to 18 months of growth capacity is now already sold out so.
We continuously look for small expansions. The next large expansion, we've already announced will be in Europe in 2024.
<unk>.
Yeah.
Hopefully, we'll find some more before that but we are pushing as hard as we can to grow as fast as we can in that area, but it's limited right now by our ability to get metal in the ground.
Great. Thank you very much.
Thank you. Our next question is from the line of Arun Viswanathan with RBC capital markets. Please proceed with your question.
Great. Thanks for taking my question and congratulations on another strong year.
Yes, just two questions. So first off could you just update us maybe on.
Any parts of your portfolio that are still lagging maybe thinking within the electric procedure side on EM.
When do you expect that to get back to normal levels.
Okay.
We thought.
Thanks, Arun we saw good growth actually in implants this year.
About a 20% improvement over 2020, but you are right. It is still lagging we're still kind of 15% to 20% below where we were in 2019.
Looking at what the implant makers are saying, we full we don't expect full recovery of implant volumes until we really get into 2023 at this point.
Okay. Thanks for that.
I just wanted to again go back to the question of <unk>.
Appointment of cash I mean, there's again, there's quite a robust trajectory here from the $1 billion for and potentially growth from there over the next couple of years as you bring on these.
These investments.
So does it make sense at least to potentially accelerate the capital return in light of so high valuation multiples or are you looking to.
Continue the inorganic growth side.
Yes, I think as Larry said earlier I mean, our focus is always on organic growth versus our historically, our highest return projects and we've got $600 million earmarked this year for capital to invest back in ourselves and then what we've historically done is take that free cash flow in this year at $1 4 billion.
<unk>.
And then deploy that for to service the dividend and then for repurchases.
And M&A and Thats.
With where the dividend is that that's likely going to be somewhere in the 1 billion slightly more than $1 billion of capital that we'll be able to deploy back with that.
For M&A and for repurchases, so that focus really hasnt changed and given with that that cash generation. We think that just presents more opportunity for us.
Okay. Thanks.
Thank you. The next question is from the line of Alex <unk> with Keybanc. Please proceed with your questions.
Thanks, Good morning.
Fairly sizable nylon compounding business.
You look at the transition to <unk> do you think by alone has risks related to content loss because of its use in high speed applications or is there still in that content gain.
Because of new nylon applications.
It's a great question and one we're hearing a lot our belief is.
Don't expect a decline in nylon with the move to <unk>. There are a lot of applications for nylon in the B. So.
High speed connectors, the powertrain and obviously body. The interior nylon is really good for light weighting and still being able to get strength and dimensional stability in.
In fact, we've had a few new applications using nylon MTBE. So we have a <unk> application that's going into.
Tell gate on an electric vehicle for example, so it's lightweight it has good appearance high strength that saved money because it's one piece versus two pieces. So we really see more I would say at least equal if not more opportunities for nylon into evs as we're in.
Conventional vehicles.
Alex I also wouldn't underestimate the power of recycled nylon and this has been one of the things that we have gained through acquisition.
We've been really growing that eco mid part of our nylon portfolio.
As our customers look for more and more recycled content nylon is a great material to recycle and the opportunities that we have in the portfolio.
Grades that we continue to grow has been a really nice area of acceleration for us.
Thanks.
I would also say, there's a lot of nylon and things associated with Evs like the charging stations and other electrification component. So outside the vehicle itself, we see a lot of new applications developing for nylon.
That's great. Thanks, a lot.
On excess inventories of your products at the tier suppliers do you have a sense of.
I don't know one or two or five months of that excess inventory and also do you yourselves are there any excess auto product inventory.
So I'll take the last one first we do not have excess inventory, we have hardly any inventory at all of this has been a year, where we could pretty much sell anything we could make.
Our belief is the tiers arent sitting there with a lot of inventory again, we think it was a year end phenomenon that they decided to just draw down what little bit that they had.
And we don't expect that to continue into 2022.
Thank you.
Thank you. The next question is from the line of Steve Richardson with Evercore ISI. Please proceed with your question.
Hello, Hi, this is kishore and where they're calling on behalf of Steve going back to commodity volatility.
Nat gas prices still being high domestically and abroad, how quickly our costs flowing through the a little bit faster than expected and I guess, particularly on the EM side as you mentioned that theres been a bit of a lag on the ability to pass on higher costs.
Great question.
Called out a little bit we started doing energy surcharges in third at the end of third quarter with those surcharges, we were able to recover about $20 million worth of energy costs in the fourth quarter, but energy cost skyrocketed far beyond what we expected the way at about <unk>.
<unk> million dollars uncovered by those surcharges in the fourth quarter, we do expect with those surcharges now flowing through that we will get recovery of that.
Some time in the first quarter will be at a point, where we're recovering all of that and then we expect energy prices to be fairly flat for us as we go through the first quarter. So we expect again sometime in the first quarter, we should be fully recovered all of that.
Thank you so much.
Then just a follow up.
Mentioned, obviously the orders rebounded in particular.
Sure It is being a possible swing factor.
For 15.
$15 guidance of possible upside can you give a little bit more color as to what Oems are saying about the shortage. Just overall just feels like the chip shortage continues to us for longer than expected. Thank you.
Yeah look.
I think the Oems are predicting a faster recovery and some are probably have a more success getting chip than others. I would say we tend to look at IHS IHS is predicting kind of mid high single digit growth globally into next year from this year.
Which will still be still be mid to high single digit behind where we were pre COVID-19 .
So theyre not at predicting full recovery, but let's say kind of half of the way there.
Our own outlook is more conservative based on what we're seeing and what we're hearing around chip shortages.
But so that's where the upside is if IHS is right, which we all hope they are that chips come back more quickly and we think that kind of recovery. Then we will have additional upside in our auto volumes as well.
Rob Let's make the next question our last one please.
Sure. The question will be coming from the line of Angie <unk> with on field investment.
Thank you so much. The first question is really around your view our expansion could you just tell us like is this mainly going into the separator market and if so is it more dry versus event separately, because obviously, there's a huge growth in PBT in front of us. So just wanted to understand.
Your potential further expansion that you are in this regard and then the second question really is sort of around <unk>.
Your comments around M&A.
<unk> outlined the sort of strength of the Cdos platform now in terms of also sustainability. So do you think that set of needs in terms of the structure as it is today with a.
<unk> is the way to go forward. If there is a transformational deal or should we think that if there is a transformational deal separate path for those two businesses is also very much on the Cogs. Thanks a lot.
Great. So let me take your first question. So the Bishop D. U R started up kind of at the end of 2021 that volume is essentially going to support the lithium ion battery separator film growth that I called out earlier and it is wet for those of you that asked me from before.
So again, we are looking to expand in every way as quick as we can those markets continue to grow very strongly but a major expansion into EUR will be in 2024 in Germany.
With an expansion that we have there and then on your second question in.
About M&A look we continue to value, having our businesses together I think we see the advantage of that this year and I think we'll see the advantage of that if we do big M&A that we get this great.
Cash flow from acetyl, which helped which gives us more flexibility and capability to support larger M&A. Obviously, we think we have talented advantages for having a bigger group.
And other advantages about because a lot of materials coming out of the acetyl chain gets used in engineered materials. So we like having the businesses together as I've said on this call before we never say never if at some time, we think we would need to separate them to realize the value of the assets. We of course would always consider doing what's best for the shareholder but at this.
In time, we think we see having these businesses together as we go forward.
Thanks, a lot.
Thank you at this time I will now turn the call over to Brendan <unk> for closing remarks.
Thanks, Rob we'd like to thank everyone for listening in today as always we're around after the call. If you have any follow up questions at all Rob. Please go ahead and close out the call.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.