Greetings. Welcome to Celanese’s Fourth Quarter 2021 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. At this time, I’ll now turn the conference over to Brandon Ayache, Vice President, Investor Relations. Brandon, you may now begin.

Thank you, Rob. Welcome to the Celanese Corporation fourth quarter 2021 earnings conference call. My name is Brandon Ayache, Vice President, Investor Relations. And with me today on the call are Lori Ryerkerk, 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 prepared comments. Form 8-K reports containing all of these materials have also been submitted to the SEC. Because we published our remarks yesterday, we’ll go ahead and open the lines for questions. Rob, please go ahead and open the line.

Thank you. At this time, we’ll now be conducting a question-and-answer session. [Operator Instructions]. 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 you’re not expecting another shutdown at Nanjing or any disruptions from the Olympics. Do you think China can get from a zero COVID strategy to an endemic COVID environment like the U.S. and Europe without a lot more disruptions?

That’s an interesting question, John. We’re really not – we said we weren’t expecting any disruptions. It was really around energy curtailments or things like we saw in the October timeframe. Also with Chinese New Year’s and Beijing, a little bit differently than we’ve seen prior to 2020. We’re not seeing as many total shutdowns during that period as China worries about their economy and wants to see recovery. So we’ve modeled in only mild seasonality across our businesses for Chinese New Years and for the Olympics. The COVID question is an interesting one. I’d say COVID seems well under control in China, at least from officially reported. But we would also say, our experience in our plants and our offices is – 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 strategy and more towards managing endemic. So I do believe, I think the outcome of all what I’ve just said is, I – my personal belief is that we will see a fairly smooth transition in China as they go as much of the rest of the world is towards more of managing is endemic versus sticking with their zero COVID policy.

Okay. And could you talk a little bit about about the M&A outlook. Santoprene appears off to a good start. And – but what are the areas of Celanese that you’re most interested in expanding? Is it another polymer like Santoprene? Or is it maybe something in Asia after the poly plastics transaction? Or maybe something in chemicals like the redispersible polymers you did?

Yes. So, look, Santoprene, we are really excited about Santoprene. The transition went really well over December. Even just one month in, we’re already starting to see delivery up from synergies that are ahead of schedule. 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 Santoprene. And of course, we’re really excited about not just the assets we acquired, but the people we acquired. And the great job that they’ve done really coming into Celanese and becoming part of the Celanese family. So you’re right. Santoprene, we think has been a great success so far, and we anticipate it just gets better from here. And makes us excited about a future M&A as well in our ability to continue to do larger and larger M&A. To – 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, different additional geography. We are looking at acquisitions across both Engineered Materials and the Acetyl Chain. So I would say, our lens 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 employ bandwidth and capability. And again, especially with some of the acquisitions we’ve done with the Elotex and Santoprene bring in even more talent to take on additional M&A going forward.

Thank you, Lori.

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.

Thanks very much. In your script describing M&A, you said that you are considering a wide range of opportunities within your desired investment-grade rating. Does that indicate that your acquisition aspirations are more modest, rather than transformative?

I wouldn’t make that assumption, Jeff. If you look at our actual financial capability, if you look at by cash, the free cash flow we had this year at $1.3 billion, next year will be at $1.4 billion. 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 could 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 say that these are – our ambitions are modest. I’d say, actually, we’re 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 question.

Yes, good morning. First question is just on the Acetyl Chain. When you look at the different steps from acetic acid down to VAM 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 might make some announcements around new capacity in that chain over the next couple of years?

I would say the entirety of the chain is pretty tight right now. Just look at utilization. Acetic acid had been pretty close to 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 timing 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 yeqingjiee [ph]. VAM is very tight. I would say VAM has been around 100% utilization for some time now. It was a little bit better in the fourth quarter. But again, in the first quarter, we see it being really tight again, as we have some outages, especially in China for turnarounds as well as the maintenance downtime. So, I think VAM is going to continue to be very tight. We’ve announced some expansions in VAM. There’s been a few other ones, but I think the demand in VAM continues to grow quite rapidly. And then if you go into our downstream products, like emulsions and RDP, I would say, the demand is huge right now. There’s 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 RDP powders to make thermal insulation systems for putting on the externals of buildings. And so especially in Europe, we’re just seeing a demand, quite frankly, that the industry can’t keep up with right now. So I’d say you know, those utilization rates are definitely in 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, we’re at least four to five years out from any other expansions there other than our Clear Lake capacity that will come on first half of 2022 – 2023, sorry, I get the wrong right year, 2023. And I think we called out some VAM expansions. We’ve called out some VAE 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 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 get 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 2022 look like different than 21 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 see methanol prices going up, I would also say it hasn’t changed the relative order of attractiveness. U.S. Gulf Coast natural gas, even at $6 million BTU, as we saw during times in the fourth quarter, is still the most attractive source of raw materials for acetic acid. Coal, oil, kind of stay almost in parity, and it goes back and forth. But I’d say, 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 and Singapore for us, and I don’t really see that changing. And I think what that means is, even with higher natural gas prices, because the marginal capacity in acetic acid is coming out of China, which is coal price, you’ll continue to see prices that support good margins in the Acetyl Chain, as we go forward over the next few years.

Yes. Duffy, the only thing 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 cost for others has 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 Koort with Goldman Sachs. Pleased proceed with your questions.

Good morning, Lori. This is actually Mike, sitting in for Bob this morning. And I was wondering in your prepared comments, you kind of talked about an expectation of acetyls industry pricing moderating in the first quarter. I was wonder if you could give us perhaps maybe a bit more color around the magnitude of moderation you may be baking into your guide.

Sure. Look, 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 free – and the free, some large turnaround in the U.S., in particular, than 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 and 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, the – there typically is like a seasonal, I guess, rebound in pricing and kind of that 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 As production – as consumers are shut down in China during that period of time, and a lot of factories shut down for a couple weeks of folks getting station. We’re really – we’re not putting much of that in our forecast for first quarter because we’re – we have a minor amount of seasonality that we put in first quarter. So as a result of not seeing much seasonality in first quarter, I wouldn’t expect much rebound in second quarter and third quarter, just because we’re 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 questions.

Hey, good morning. Lori, just curious in the third quarter prepared remarks, you talked about 2023, and I know 2023 is more of a guideline versus specific guidance at this point. But they still 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, you probably realize that our numbers, if you add them up, come a little bit closer to $16. If you look at the – called – what we’ve called out for individual businesses, look, we’re just trying to be prudent with the $15. We’re feeling good about 2022. And what we see there if conditions continue to exist, and we start seeing improvement in supply chain, and some of those things, obviously, our number could move well above $15 for 2022. And therefore even with more moderation in acetyls in 2023, offset by growth in Engineered Materials in 2023, we feel really good at that greater than $15 number for 2023 and for the years beyond.

Got it. And then I guess for EM, you’re looking for another – for a good year in 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 how does that affect your outlook for – or how’s that embedded in your outlook for 2022?

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 2020. So there’s still a lot of recovery to come in auto. Now we are not – in our modeling, we’re not projecting as much recovering in auto as 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 auto. So ourselves and 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. Lori, maybe just picking up on the comments on China, as you sort of think about 4Q in the acetic acid and VAM pricing fate that you referenced in your prepared comments in the region, is that just – I mean, realizing there’s a lot going on? Is that just a function of the economy having slowed in China with real estate, et cetera, and that continues in the first quarter? And then just your view in terms of the recent stimulus measures that have been announced in the country. How do you see that sort of playing forward for Celanese beyond the first quarter? You’ve given very specific guidance for 1Q, 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 phenomena. 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 pricing run up. And with that – and then we had the curtailments being announced in China. And I think there was a huge concern that acetic acid plants, VAM plants we’re going to shut down. And so we saw price shoot up to $1,300 per metric ton. That was a very short impact, though. It’s 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 850 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 will 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 calling out moderation. And again, we’re just calling that out on assuming supply stabilizes throughout the world in the supply chain and demand remained fairly steady. And that really is our outlook for China, to your further question. Even at slower 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 is intentionally wanting to shut down, we’re seeing China clamp 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 insulation, and all those sorts of thing. So outlook is still pretty robust for China, throughout the entirety of the year in 2022.

Okay. Very helpful. Thanks. And then on the EM margins down somewhere between 500 and 600 basis points below ‘18, and sorry, yes ‘18 to ‘19 levels. I know the mix has changed a bit. But as a previous – prior high watermark still realistic, sort of pro forma of the acquisitions, including Santoprene?

Yes, I’d say like, look, our expectations for acquisitions is the same, just given the nature of the business when we got Santoprene, 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 a chance to take commercial actions around pricing and other things with Santoprene, that we’ll be able to get them up to the expectations 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 EM portfolio, we knew it’s going to take some time. And as we called out in the prepared remarks, we do expect to get ahead of that here by the end of the first quarter. And then you should see margins improve here in both with Santoprene and 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. Lori, I was wondering if you could talk through the energy spike in Europe, as energy costs there quadruple or quintuple? How are you dealing with that? And in practical terms, and 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 that’s – we haven’t talked about in those terms. But that is what it feels like right now. So, what the spikes we saw in third quarter and then the even greater spikes that we saw in fourth quarter are really unprecedented. It’s I think, was pretty clear from the chart. And I mean, it’s been really volatile. 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 hedge in the fourth quarter and first quarter in 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 at all. So that’s what we had to pass through those costs to our consumers. We chose to do it through a surcharge, because it can 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 customers: one, because everybody is experiencing these price increases; and two, some of the supply logistic constraints right now make it really hard for people to source from other places. But 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 look, some of the price increases we’ve had that were just price increases based on other raw materials, we’ll see the benefit of those four sometimes to come. Because these are value priced items, that those price increases will stick for a while. The surcharge will 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, we’ll be recovering all of the additional energy pricing that we’ve experienced.

Okay, thank you for that. And then secondly, I want 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 Acetyl 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. Base pricing still matters. And so to the extent, we see supply tightness, whether they be from weather events, whether they be from unplanned shutdowns, supply tightness in a market that is at, let’s say, 85% to 90% utilization, it reflects very quickly in increased 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 is obviously an issue as a 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 that perfect, but we are assuming they’re starting to moderate over the course of the year. If we see that not happen, that will have some impact. But as you saw those numbers are in the 10s and 20s of millions in a quarter, not hundreds, like we would see acetyl pricing. And then for EM, I think, auto recovery is a big issue. Again, we’ve assumed pretty flat auto between 2021 and 2022, based on chip shortages. But if we see that resolved, and there’s 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. Pleased proceed with your questions.

Thank you. Good morning, everyone. You mentioned in the prepared comments in the Acetyl Chain that your RDP business – the volumes were up, I think, you said 25% versus their historical peak and that should be shifting more of your mix there and I guess, broader emulsions in 2022. So could you just talk to us a little bit about what’s happening in RDP, that was allowing that volume performance? Is it something you were doing with the asset and or new ownership? Is it 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 powders. So whether it be paints and coatings or 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 requirements, or greenhouse gas footprint reduction requirements, 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 Elotex, which let us get into the RDP market, we’ve been able to take those assets, we’ve been able to do bottleneck them quickly, we’ve 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 as RDP, may be something that someone who’s not vertically integrated would struggle to do. And 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 emulsions and RDP together as a package, which allows customers in 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, that’s been a big win for us and something we think is really going to secure the 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’re talking about autos for 2022, you’re 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 working capital purposes? Or was just a function of a built too much inventory in 4Q – sorry in 2021 versus what the chips allowed them to do? And is that destocking done? Or is it something that could be a feature of this year as well?

Yes, great question. So our belief is we saw really good demand still in third quarter, despite a low level of auto bills in third quarters. And our belief is the tiers were 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 as strongly as everybody expected. And then it was year-in, so the tiers chose to just pay do some destocking over the quarter, so that they didn’t have the earn-in 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 phenomena. We think it was simply a year-in phenomena. We expect to see demand 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. Juvekar with Citi. Please proceed with your questions.

Yes. Hi, good morning, Lori and Scott.

Hi P.J.

In China you and your competitors were impacted by dual control. And I think dual control has ended now, and they built up their coal inventories and dual control has ended. What does that mean for more acetyls 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 25,000 tons of lost production, about half of that was VAM and the other half was a combination of acetic acid and other derivatives. So that was about 20 million to 25 million of loss margin due to that curtailment. So assuming we don’t have any curtailment and that’s obviously volume that we can produce into the system. And our expectation is the same as yours. We don’t see any indications, 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 holding up, in general, as a region? And can you just make any comments on what you’re seeing going forward? Thank you.

Yes, I don’t think we’ve really seen any major impacts 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 in acetyls that can get passed through immediately, it takes a little bit longer in EM. But generally, we do better with higher pricing. 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 EM 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 utilities based on natural gas through to the consumer real-time. We’ve had a lag in that pass-through 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 and product coming in from other regions that has helped us 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. Lori, in the prepared comments, you called out some turnaround costs in acetyls 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 assets. This year, our large turnarounds will be the two we called out. We have an – Fairway has a turnaround in the first quarter and then we have a Clear Lake acetic 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 business?

We’re still planning on high organic spending. I mean, we are planning on 600 million capital. Next year, part of that is completion of the Panther project in the acetyls 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 and new builds in China, and will really all parts of the world. So I’d 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 think that will have a – 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 is sort of relative degree of quality satisfaction with your upstream integration. I mean, obviously, we’ve seen some seismic shifts over the last couple of months, be it the European natural gas situation, the new five-year plan presented in China, obviously, looking for significant curtailments in coal usage. So as you’ve sort of seen all of those things, does that make you sort of rethink, maybe the integration strategy, maybe that should be more integrated? I don’t know how you guys are thinking about that with with some of these goings on.

Hassan, I assume you’re thinking more about integration in terms of upstream.

Upstream integration, correct. Yes.

…into the Acetyl Chain. Yes.

Indeed.

Yes. So we – look, right now, we get about – we produce about 40% of our own ethanol. We kind of like that balance of being able to produce methanol, or buy 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 we’re at.

Yes, and with the methanol expansions we’ve already announced this on, I mean, that’s going to be able to take and help us with some of the growth that we expect, largely in the Acetyl Chain over the next several years.

Understood, understood. And just also wanted to revisit 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 preference or not for certain regions. The only reason I bring that up is they seem to be some chunky assets in Europe that the are spinning low, looking to be acquired, I’m thinking in terms of the DSM plastics unit, the [indiscernible] HBN business. I mean, the question really is you guys have a sizable presence in Europe as is. Would you consider doubling down on Europe? Would you be dissuaded by that? Just reasonably how you’re thinking about M&A?

Hassan, 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 aspects of a deal to make sure that something that we believe will create outside value for Celanese and our shareholders.

Very helpful. Thank you.

Our next question is form 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 past quarter, again, the 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 and more opportunities? How should we be thinking about that?

I think you’re right. I mean, I think fourth quarter continues to demonstrate the real strength of the business model we have in acetyls. 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 is – made us really good, I would say even better at adapting to and capitalizing on disruptions, which we’ve seen a lot this year. And I think the performance of our acetyl team is really impressive this year, if you look at all of the opportunities we had to not be agile, they’ve really taken advantage of it and create a lot of value for the company this year. I think you see that we really focused on China this year, the 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, 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% swing, from China to the Western Hemisphere. Similarly, we saw swings out of acetic acid and more into VAM, emulsions and RDP. 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 say, look, we’ve had some issues around supply chain logistics and freight like many of them, and like many folks have. But I would also say, our team has been amazingly resilient and flexible, and securing chip, securing whatever they needed to do and making sure we could move things as we needed to really maximize the value of that chain. Look, like anybody, it took us a little bit longer in some cases to fill out those value chains. But I would say, we’re through that now and have the lead times in place to really be able to continue to take advantage of them.

Got it. No, 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 have been throwing off, maybe more so than in some expected, I guess, can you help us to understand what or how much you can stress or flex the balance sheet and still keep the – still keep your investment-grade rating? Can you go north of four times? Is 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 depends 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 situation. So, I mean, 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 could do from a balance sheet perspective. And it really comes down to cash generation. We feel really good about 2022 at $1.4 billion. And we think that cash generation with the 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. Pleased proceed with your questions.

Hey, good morning. Maybe sticking on the M&A topic, Lori, I thought the comments that you’re looking at M&A in the Acetyl Chain were pretty interesting, just given your large market position. Would this be something more downstream like emulsions? Or do you think you could consolidate acetic acid and VAM capacity in other parts of the world?

That’s a fair question, Matthew. Look, we do have a large position already in the Acetyl Chain. So things as we look at M&A for the Acetyl Chain, it is things more like Elotex. So, further downstream in the value chain, that is more likely possibilities than, say, any kind of a big M&A around acetic acid or some of those products – those products where we already have a fairly large position.

Got it. And then in the prepared comments you noted that you’re immediately sold out of the Bishop GUR clamp that just started up. Are there any like low-cost expansion opportunities here? Or is it pretty much set at 15 kg?

There are – we have been doing the low-cost expansions as we can. Our engineers are looking very hard at that. Obviously, GUR 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 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. 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 just 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. Congratulations on another strong year. I guess, 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 elective procedure side on EM? When do you expect that to get back to normal levels?

We saw things are in. 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. And I just wanted to again, go back to the question of deployment of cash. I mean, there’s – again, there’s quite a robust trajectory here from the billion for and potentially growth from there over the next couple of years as you bring on 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?

Well, I think, I mean, as Lori said earlier, I mean, our focus is always on organic growth first, 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 and this year at $1.4 billion, and then deploy that for to service the dividend and then for repurchases and M&A. And that’s – with where the dividends at, that’s likely going to be somewhere in the billions, probably more than $1 billion of capital that we’ll be able to deploy back with that for M&A and for repurchases. So, I think that focus really hasn’t changed. And given with that cash generation, we think it just presents more opportunity for us.

Okay. Thanks.

Thank you. The next question is from the line of Aleksey Yefremov with KeyBanc. Please proceed with your questions.

Thanks. Good morning. You have a fairly sizable nylon compounding business. If you look at transition to EVs, do you think nylon has risks related to content loss because of choosing high heat applications, or users still in that content game because of new nylon applications?

It’s a great question and one we’re hearing a lot. Our belief is we don’t expect a decline in nylon with the move to EVs. There are a lot of applications for nylon in EV. So the high speed connectors, the powertrain, and obviously body the interior nylons, really good for lightweighting and still being able to get strength and dimensional stability. In fact, we’ve had a few new applications using nylon into EV, so we have a cell strand [ph] application that’s going into a tailgate on electric vehicles, for example. So it’s lightweight, it has good appearance, high strength, it saves 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.

Yes, Alek, I also wouldn’t underestimate the power of recycled nylon. And this has been one of the things that we have gained through acquisition and we’ve been really growing that ECOMID 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 of 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 in things associated with EVs, like the charging stations and other electrification components. So outside the vehicle itself, we see a lot of new applications developing for nylon.

That’s great. Thanks a lot. And on excess inventories of your EM products at the tier suppliers, do you have a sense of they have, I don’t know, one or two or five months of that excess inventory? And also, do you yourself have any excess auto product inventory?

So I think the last one first, we do not have excess inventory. We have hardly inventory at all, this has been a year where we could pretty much sell anything we could make. Our belief is the tiers aren’t sitting there with a lot of inventory. Again, we think it was a year-in phenomena 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 Keyshawn [ph] calling on behalf of Steve. Going back to commodity volatility with nat gas prices still being high domestically and abroad. How quickly are costs flowing through a day a little bit faster than expected? And I guess, particularly on the OEM side, as you mentioned, that there’s been a bit of a lag on the ability to pass on higher costs.

Great question. And we called out a little bit. We started doing energy surcharges in third quarter – 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 that energy costs skyrocket is far beyond what we expected. So we had about $15 million uncovered by those surcharges in the fourth quarter. We do expect with those surcharges now flowing through that we will get recovery of that sometime in the first quarter. We’ll 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 recovering all of that.

Thank you so much. And then just a follow-up. You mentioned, obviously, the autos rebound, in particular, chip shortage being as possible swing factor for $15 guidance possible upside. Can you give a little bit more color as to what auto OEMs are saying about the shortage? Just overall, this feels like the chip shortage continues to last for longer than expected. Thank you.

Yes, look, I think the OEMs are predicting a faster recovery, and some are probably having more success getting chips than others. I would say, we tend to look at HIS. IHS is predicting kind of mid, high single-digit growth globally into next year from this year, which will still be mid to high single digits behind where we were pre-COVID. So they’re not predicting full recovery. But let’s say, kind of half of the way there. Our own outlook, we’ve – it’s 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 I guess as right, which we all hope they are that chips come back more quickly, and we see that kind of recovery, then we’ll have additional upside in our auto volumes as well.

Rob, let’s make the next question, please.

Sure. That question will be coming from the line of [Sanjeev Panda with On Field Investment] [ph].

Thank you so much. The first question is really around your GUR expansion. Could you just tell us like, is this mainly going into the separator market? And if so, is it more a dry versus a wet separator? Because obviously, there’s a huge growth in PVDF in front of us. So just wanted to understand your potential further expansions in GUR in this regard. And then the second question really is sort of around your comments around M&A. I mean, you’ve outlined the sort of strength of the acetyl platform now in terms of also sustainability. So do you think that Celanese in terms of the structure as it is today, with EM and acetyls, is the way to go forward if there is a transformational deal? Or should we think that if there is a transformation, the separate path for those two businesses could – is also very much on the cards? Thanks a lot.

Great. Let’s – so let me take your first question. So the Bishop GUR 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 before. So again, we are looking to expand in every way as quick as we can. Those markets continue to grow very strongly. But our next major expansion in GUR will be in 2024 in Germany, with an expansion that we have there. And then on your second question 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 at M&A that we get this great cash flow from acetyls, which helps – which give us more flexibility and capability to support larger M&A. Obviously, we think we have talent 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 point in time, we think we see having these businesses together as we go forward.

Thanks a lot, Lori.

Thank you. At this time, I’ll now turn the call over to Brandon Ayache 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 up the call.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.