Celanese Corp

Celanese reported solid second-quarter results, as higher prices in the commodity chemical business generated strong profit growth.

Why it matters: Shares were down 7% intraday on Aug. 5, as management gave 2026 guidance that was below FactSet consensus estimates. We also were surprised by the guidance, which implies lower sequential profits in the second half following strong second-quarter results. Our forecast assumed cost inflation would weigh on volume in the downstream business. However, we thought higher commodity prices would support stronger profit growth in the commodity chemical business throughout 2026, not just in the second quarter, as we expected the Middle East conflict-driven supply shock would keep prices higher for longer.

The bottom line: We reduce our fair value estimate for narrow-moat Celanese to $80 per share from $95. The reduction is driven by our lower near- and medium-term outlook, particularly in the commodity acetyl chain business. We still view the shares as undervalued, trading at about half of our updated fair value estimate. For long-term investors, we see a path to profit recovery as the firm's plan to shut down high-cost production should drive margin improvement over time. We continue to see long-term value in the shares but maintain our Very High Morningstar Uncertainty Rating. The company's elevated debt and cyclical end markets create a wider range of outcomes versus other commodity chemical peers.

For more information on our long-term outlook, please see our report, "US Chemicals: Near-Term Slowdown, Long-Term Opportunities."

We reduce our fair value estimate to $80 per share from $95 following second-quarter results. The reduction is driven by our lower near- and medium-term outlook. We assume a weighted average cost of capital of around 8.5%.

The marginal cost sources for many of Celanese’s commodity chemicals are oil-based naphtha or higher-cost European or Asian natural gas. However, Celanese produces the majority of its chemicals from low-cost US natural gas feedstock. As such, the company benefits from a wider spread between US natural gas and either Brent oil or European and Asian natural gas.

We forecast revenue growth in 2026 even following the Micromax divestiture and strong operating EBITDA growth due to cost reductions and much improved acetyl chain results following the energy and commodity chemical supply shock from the Middle East conflict. As the supply shock alleviates, we see lower results in 2027.

Longer term, in engineered materials, as demand normalizes and the company reduces costs from the integration of the DuPont and Santoprene acquisitions, we expect segment EBITDA margins to recover from the high teens in 2025 to the mid-20s in a midcycle environment.

We forecast the acetyl chain segment to experience strong profit growth in 2026, followed by a profit decline in 2027. Longer term, as demand normalizes and the Clear Lake expansion project ramps up production, we forecast the business will return to growth. We expect EBITDA margin for the acetyl chain business, which primarily sells acetic acid, to rise to the high 20s in 2026, fall to the mid-20s in 2027, then recover to the mid- to high 20s, in line with 2024 results, under midcycle conditions.

In a downside scenario where Celanese sees prolonged volume decline due to a global economic slowdown, we forecast revenue to decline by an average of 2% per year, while companywide operating EBITDA margin would average around 20% over our five-year forecast, well below the mid-2s% trailing five-year average. In this scenario, our fair value estimate would fall to $30 per share.

We assign Celanese a Narrow Morningstar Economic Moat Rating due to its cost advantage in the acetyl chain business, which generates acetic acid and downstream derivatives, and the combination of intangible assets and switching costs in the engineered materials business.

We view chemical companies through the commodity processor moat framework. Chemical producers can generally earn a moat if they have a cost advantage in producing commodities, if they convert commodity chemicals into patented, differentiated products, which generates pricing power, or if they jointly develop customized products with their customers and this creates switching costs. We think Celanese’s acetyl chain business benefits from a cost advantage, while the engineered materials business benefits from the combination of intangible assets and switching costs.

Celanese has capital and operating cost advantages in its acetic acid production from economies of scale and lower feedstock costs that we expect to prove durable. Celanese has built some of the largest acetic acid facilities in the world, with a capacity of 2.0 million tons compared with the average 0.5 million-ton plant. Celanese's plants exhibit economies of scale, allowing them to spread capital costs and fixed operating costs across greater production volume. The overwhelming majority of the company's facilities use low-cost feedstock, including natural gas in the United States and coal in China. In contrast, higher-cost producers typically use oil-based naphtha feedstock. Although the acetic acid cost curve is relatively flat, Celanese's position is firmly at the low end of the cost curve, which has allowed the firm to generate consistent economic profits over time.

Celanese's primary input costs are methanol and ethylene. Methanol prices are tied to higher-cost natural gas prices in Asia, which is the marginal cost feedstock. Similarly, ethylene is linked to oil prices, as oil-based naphtha is the marginal cost feedstock. Because Celanese’s primary feedstock is US natural gas, the firm’s profits are tied to the spread between US natural gas and both oil and Asian natural gas. We expect these spreads will remain favorable for US natural gas over our five-year explicit forecast period, which should benefit Celanese due to the company’s access to low-cost feedstock. Further, as the company increases the proportion of its low-cost, US-based acetic acid production, its costs should decrease, further supporting higher profit margins. Although Celanese is expanding its downstream portfolio in an attempt to increase its portion of specialty chemicals, we ultimately think the company’s feedstock advantage will drive excess returns. Further, by expanding its downstream portfolio, Celanese should be able to run its acetyl chain plants at higher capacity utilization rates, which should help this business generate solid profits even during an economic downturn.

The company's engineered materials segment benefits from the combination of intangible assets and switching costs. While this segment has historically been more commoditized, the acquisition of Santoprene from ExxonMobil in 2021 and the DuPont mobility and materials portfolio in 2022 shifted this segment toward specialty products. This business produces patented specialty polymers used in automobiles and medical devices, which combined generate the majority of revenue. Autos is the largest end market at roughly 50% of segment sales. Celanese develops customized polymers closely in conjunction with its customers and often receives the mandate to be the sole supplier for a piece of equipment, which can range from a plastic gas tank or electric vehicle battery separator to the plastic in an asthma inhaler or hip replacement. Automakers work closely with suppliers because each part is designed for specific vehicle models. As such, automakers rarely change suppliers during a vehicle model’s lifecycle, which typically spans 6-13 years, including development. Medical device manufacturers must go through extensive testing of their products, so they don't often change suppliers of key components. Further, Celanese’s products receive regulatory approval included in the medical device. This makes Celanese a preferred supplier for generic medical device producers as using inputs that have already received regulatory clearance reduces regulatory risk for the generic producer. These dynamics support switching costs for the majority of segment sales. To support our view that this business benefits from switching costs, the engineered materials segment has historically been able to hold prices better versus commodity chemicals even when input costs are falling.

All in all, we think Celanese has a narrow moat because of its low-cost acetic acid production in the upstream acetyl chain business and the combination of intangible assets and switching costs in the downstream engineered materials business. We’re confident the company will be able to outearn its cost of capital over the next decade.

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 (2 million tons versus the average of 0.5 million tons).

Celanese should benefit from producing an increasing proportion of its acetic acid in the US to take advantage of low-cost natural gas.

Through acquisition, Celanese transformed the engineered materials business into a premiere specialty chemicals business that will create value for shareholders.

Celanese's acetyl chain business will face long-term margin pressure from a narrower spread between Brent oil and US natural gas.

Celanese's high debt will impede the company's ability to invest in long-term growth.

The acquisitions made to expand the engineered materials business destroyed value for shareholders, as expected growth and benefits didn't materialize.