Issue Date: October 15, 2012
Celanese Bets On Technology
Mark C. Rohr is fond of setting targets. As chairman and chief executive officer of the specialty chemical maker Albemarle, he set lofty goals for sales and earnings per share.
Now Rohr, 61, also has big ambitions for Celanese, where in April he took over as CEO from David Weidman. At the firm’s first Technology Day, held for investors last month in Houston, Rohr laid out an earnings-per-share growth target of 12–14% annually through 2016, up from 10% in 2011. And he set a target for return on capital invested at more than 20% in 2016, up from 15% in 2011.
He is counting on Celanese’s technology strengths to help him achieve these targets. The firm claims its acetic acid technology makes it the lowest-cost producer of the chemical in the world. Building on that technology, Celanese has a new process, dubbed TCX, for making ethanol from hydrocarbon sources. It also boasts a strong development team that has led to advances in polymers, sweeteners, and other businesses.
Rohr, who has a B.S. in chemistry and chemical engineering from Mississippi State University, explained that he purposely left out a 2016 sales target, in contrast to his approach at Albemarle. “Our real focus is driving cash flow and earnings with our base portfolio,” he told C&EN. The best-performing companies, both in chemicals and other industries, tend to have earnings growth in the low teens and a return on capital north of 20%, he noted. “If you want to be the best, you’ve got to find a way to get to those levels,” Rohr said.
His focus on profitability is understandable in the face of a credit crisis in Europe, a slowdown in China, and a sluggish U.S. economy. This tough global economy has already affected Celanese. Earlier this year, the firm idled its 600,000-metric-ton-per-year acetic acid plant in Singapore. That plant is one of three that Celanese operates; the others are in Clear Lake, Texas, and Nanjing, China.
Rohr attributes the Singapore shutdown to a lack of demand. The market is oversupplied, he said. “India’s economy is weak, and China is not doing the best.” The situation is temporary, he maintained, but he is unwilling to predict when market conditions will improve and the unit will come back on-line.
Second-quarter operating earnings in the acetyls business, where Celanese derives about half of its sales, slid nearly 45% to $99 million compared with the same quarter a year ago. When the company released those results at the end of July, it warned of “troughlike conditions in the acetyl chain through the rest of 2012.” Overall earnings of $402 million in the quarter were off only 9%, thanks to the strength of Celanese’s other businesses.
With its technology emphasis, what Celanese is doing now, Rohr said, “is putting itself in a position to grow with or without the help of the global economy.”
Analysts who follow Celanese say the company is on the right track. David Begleiter, an analyst at investment banking firm Deutsche Bank, recently cautioned investors that Celanese’s growth prospects in the near term are limited by macroeconomic conditions. But he expects the firm’s low-cost acetic acid position to help it boost earnings significantly in 2013.
Laurence Alexander, who follows Celanese for brokerage firm Jefferies & Co., told investors that uncertainty over the pace of recovery in the firm’s acetyl intermediates segment increases the importance of the TCX technology. But investors want to know more about the company’s plans to exploit the ethanol technology, he said.
In July, Celanese opened a 40,000-metric-ton-per-year natural-gas-based ethanol technology development unit in Clear Lake. And the firm has committed to building a 275,000-metric-ton coal-based ethanol plant at its Nanjing acetyls complex by mid-2013.
In addition, the firm is negotiating with what it identifies only as a large state-owned enterprise in China to jointly build a 400,000-metric-ton coal-based ethanol facility after 2014. Comments at the firm’s Technology Day by John Fotheringham, general manager of advanced fuels, suggest Celanese’s negotiating partner is either Sinopec or PetroChina, China’s two largest oil firms.
Celanese also revealed in July that it is in talks with Pertamina, Indonesia’s state-owned energy company, about a collaboration to develop ethanol projects in the country. If a deal is reached, the two say Indonesia could avoid importing as much as 30 million barrels of gasoline annually.
But those projects don’t come near to satisfying the enormous fuel ethanol market Celanese expects by 2020. At the Technology Day in Houston, Steven M. Sterin, chief financial officer and president of Celanese’s advanced fuel technology business, said the firm envisions a global fuel ethanol market by then of about 130 million metric tons annually.
Half of that market will be served by ethanol sourced from corn and other biofeedstocks. The remainder will be served by ethanol made from fossil feedstocks such as coal or natural gas, Sterin said. For Celanese, that fossil-based ethanol represents a potential $100 billion market for its one-of-a-kind technology.
“We have an opportunity to go after a market larger than our company, but we don’t have unlimited resources,” Sterin told C&EN. Celanese plans $400 million in annual capital expenditures for all its businesses over the next few years. Just one world-scale ethanol plant costs about $300 million to build, he said.
Celanese is “open to a variety of models,” such as joint ventures and licensing agreements, that would allow it to deploy TCX technology without exceeding its capital budget. “We need to protect the technology and get paid appropriately,” he said.
When pressed for a specific strategy, Sterin would only indicate that the global rollout of TCX technology will likely vary by country and customer. Celanese’s arrangements with Pertamina and its unnamed Chinese partner are still being worked out. Where strong intellectual property laws exist, Celanese could license TCX technology, Sterin said. Where such protection doesn’t exist, the firm might build and own.
The largest opportunity for the technology is in countries where the economy is growing fast, land for biobased fuels is scarce, and coal is plentiful, Sterin said. For instance, China has just one-sixth of the arable land per capita that the U.S. does, but it enjoys considerable coal reserves. And in 2020 the country will likely be importing 70% of the crude oil it needs.
Blending 10% ethanol in gasoline would help China reduce oil imports and meet its goal of cutting airborne particulates from combustion sources by 30%. In addition, ethanol helps reduce nitrogen oxide and sulfur oxide emissions, Sterin pointed out. He figures China could use as many as 15 world-scale TCX ethanol plants by 2020.
Indonesia will likely import 60% of its gasoline in 2020. Meanwhile, the country exported 80% of coal produced in its mines last year. With arable land per capita only one-fifth that of the U.S., the country has little land to devote to bioethanol. Thus Sterin estimates the country could benefit from three or four TCX plants by 2020.
But acetyl chemistry and ethanol make up only part of Celanese’s technology effort. The firm has built up large decentralized R&D organizations attached to its other businesses. Those units focus on designing products to suit the needs of customers, according to Ashish Kulkarni, vice president of R&D. In total, the firm has about 500 R&D employees working at 14 locations, including major installations in Shanghai, Frankfurt, Clear Lake, and Florence, Ky., he said.
Today, R&D investment as a percent of sales is lower at Celanese than at most of its peers. In 2011, the firm spent about $96 million on R&D. Most large chemical firms spend more than 3% of sales on R&D—twice the percentage Celanese is spending.
But spending last year was up more than 35% compared with 2010. In addition, the company spends another $10 million or so on applications development with customers. The figures are set to rise again when Celanese reports its 2012 numbers and will likely be higher still in 2013, Kulkarni said.
CEO Rohr endorses the increase in R&D spending. He also backs the decentralization of R&D and vowed that Celanese will invest more money in the future to support R&D outside of the U.S. The benefits of having competent research staff close to customers can’t be underestimated, Rohr said.
When Rohr visited a maker of ultrathin notebook computers in China recently, he learned just how important it is to have Celanese engineering polymer experts close by. “They told us that development from drawing to shipment is a total of four months,” Rohr recalled. “So the time we have to specify the engineering resin shell of that computer is just 10 days. You have to be right there with the knowledge and ability to take advantage of those opportunities.”
The firm is aggressive in drumming up new business as well. “We’ll visit a manufacturer we haven’t worked with before and hand them a component from one of their products,” Rohr said. “We anticipate their needs, and so the receptivity is phenomenal.”
Phil McDivitt, vice president of the firm’s advanced engineering materials business, said Celanese is finding new opportunities for its polymers as auto manufacturers focus on decreasing the weight of vehicles in the drive for better gas mileage.
“Applications for our products are not typically in big parts served by commodity plastics,” McDivitt said, but rather in severe service components such as acetal resins for fuel lines and tanks. Engineering resin use in cars has grown from an average of 31 lb per vehicle in 2000 to 48 lb in 2011, he said. Celanese figures that the global market for automotive engineering resins is worth more than $500 million per year.
Celanese is also becoming more involved in combining its polymers with carbon fibers to make composites for high-performance auto and oil-field applications. Although Celanese has not traditionally been involved in composites, they open “a large transformational opportunity for us,” McDivitt said.
In sweeteners, Celanese sees a chance to enlarge its share of the $80 billion-per-year global sweetener market. High-intensity artificial sweeteners, such as Celanese’s Sunett-brand acesulfame potassium, have captured less than $2 billion of that market.
Acesulfame potassium has an opportunity for greater use as a calorie reduction agent in food. Citing World Health Organization statistics, Diana Peninger, vice president of Celanese’s Nutrinova food additives business, pointed out that 1.4 billion adults are overweight worldwide and more than 500 million are obese. About 40 million children under five are also overweight, she noted.
She acknowledged that most artificial sweeteners have taste shortcomings. In response, Nutrinova has developed formulas that blend acesulfame potassium and other artificial sweeteners with texturizing agents and bitterness blockers. Launched this year under the Sunsation brand, the new line opens opportunities in beverages, chewing gum, and other markets worth as much as $50 billion per year, Peninger said.
Nutrinova is also looking into developing its own “all natural” sweetener. About 20,000 plant ingredients have been screened so far, she said.
Celanese businesses such as Nutrinova each have their own growth targets in support of the company’s long-term financial goals. “Our intention now is to really execute against our core,” Rohr said. “And our core is those things we do well to make money.”
Rohr said he is largely satisfied with the portfolio of businesses he inherited from former CEO Weidman. “We are not really trying to sculpt a new portfolio,” he said, “as much as we are setting very high expectations for our ability to achieve higher levels of growth by doing what we do very well.”
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