Eastman Considers Sale of its PET Business

Eastman Chemical Co. is reviewing strategic options, including a possible divestiture, for its PET business. The company, based in Kingsport, TN, retained Bank of America Merrill Lynch as a financial advisor for the review.

PET global supply has exceeded demand since 1997, creating weak pricing.

Eastman reported a loss of $13 million in first quarter 2010 for its performance polymers group, which includes the PET business. "First-quarter 2010 results were negatively impacted by continued difficult market conditions for PET in North America," the company stated in a news release.

Global demand for PET continues to increase steadily, but at a slower rate in North America, the most important PET market for Eastman. Excess Asian PET capacity are expected to spur low-priced imports, further hurting margins in North America. About 15 percent of the U.S. market is made up of imports.

The total demand for PET in the North American market is around 4 million tons and had historically grown at 6 to 7 percent per year. PET growth rates in North America are expected to dip to 2 to 3 percent per year due to reduced consumption of carbonated soft drinks and continued light weighting of bottles.

Indorama Polymers is opening a 1 billion-lb-capacity plant in Decatur, AL, that will put further pressure on PET prices. Indorama operates in the U.S. as AlphaPet Inc., a wholly owned subsidiary. The plant location is next door to a raw material plant of BP Chemicals. Eastman previously sold two PET plants in Europe to Indorama.

Eastman also suffered from operational problems at a major plant.

In fourth quarter 2008, Eastman completed a debottleneck of its IntegRex technology facility in South Carolina, bringing capacity to 525,000 metric tons. Operational difficulties persisted throughout 2009, resulting in additional costs as well as negative impact on sales revenue through an unfavorable shift in customer and market mix. Those problems have now been largely corrected.

IntegRex technology is a lower-cost manufacturing process developed by Eastman.

Eastman began business in 1920 to produce chemicals for Eastman Kodak Co.'s photographic business and became a public company in 1993. Eastman has 11 manufacturing sites in seven countries that supply chemicals, plastics and fibers products

In 2009, Eastman had sales revenue of $5.0 billion and operating earnings of $317 million. Other plastics businesses include cellulosic plastics, which are in a different division and are experiencing a revival.