Chemical and advanced materials company Celanese Corporation (CE) has signed a Memorandum of Understanding (MOU) with Pertamina, the state-owned energy company of the Republic of Indonesia, to develop fuel ethanol projects in Indonesia.
The MOU chalks out the parties’ plans to establish a joint venture where Celanese will hold a majority stake and license its leading TCX ethanol process technology under a separate technology licensing agreement.
Pertamina, pursuant to its long-term strategy to develop new and domestic energy capabilities in Indonesia, will collaborate with Celanese to develop synthetic fuel ethanol projects using the latter’s proprietary TCX ethanol process technology.
The objectives of the previously declared Joint Statement of Cooperation, which include identification of potential production locations, evaluation of coal supply options and execution of an ethanol distribution strategy, have been successfully completed by the parties. However, the detailed financial terms of the partnership for the development of fuel ethanol projects in Indonesia are yet to be finalized.
Areas to be addressed under the detailed project planning phase include selection of production location, start of project permitting, and negotiation of coal supply and other industrial partner agreements. The partners expect the capital investment and financial returns to be consistent with the previously declared fuel ethanol projects, as referred by Celanese earlier.
Celanese and Pertamina expect the detailed project planning phase of the MOU to complete by the end of 2013. The projected fuel grade ethanol production is expected to start approximately 30 months after receiving all necessary government approvals and the final investment decisions by the companies.
Dallas, Tex.-based Celanese released its fourth-quarter 2012 results in Jan 2013. The company’s adjusted earnings (excluding one-time items) for the quarter were 67 cents per share, exceeding the Zacks Consensus Estimate of 63 cents
Sales for the quarter were $1,501 million, down 7% year over year, missing the Zacks Consensus Estimate of $1,534 million. The decline was due to lower volumes in the company’s acetyl intermediates segment and the Acetate footprint rationalization in its Consumer Specialties segment. Lower pricing also hurt sales.
Celanese expects the challenging economic conditions to sustain in 2013. Celanese plans to cut costs and run its plants better to counter weak demand. The company’s strong presence in the emerging markets should enable it to deliver incremental earnings in 2013. However, Celanese is exposed to weak demand for acetyl products, volatility in raw materials costs and currency headwinds and has a highly leveraged balance sheet.
Celanese currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold).
Other companies in the chemical industry worth considering are Air Products (APD), Akzo Nobel NV (AKZOY) and Albemarle Corporation (ALB). All of them hold a Zacks Rank #2 (Buy).
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