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

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

Eastman reported a loss of $13 million in first quarter2010 for its performance polymers group, which includes the PET business. "First-quarter2010 results were negatively impacted by continued difficult market conditionsfor PET in North America," the company stated in a news release.

Global demand for PET continues to increase steadily, butat a slower rate in North America, the most important PET market for Eastman. ExcessAsian PET capacity are expected to spur low-priced imports, further hurtingmargins 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 isaround 4 million tons and had historically grown at 6 to 7 percent per year. PET growthrates in North America are expected to dip to 2 to 3 percent per year due to reducedconsumption of carbonated soft drinks and continued light weighting of bottles.

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

Eastman also suffered from operational problems at amajor plant.

In fourth quarter 2008, Eastman completed a debottleneckof its IntegRex technology facility in South Carolina, bringing capacity to525,000 metric tons. Operational difficulties persisted throughout 2009,resulting in additional costs as well as negative impact on sales revenuethrough an unfavorable shift in customer and market mix. Those problems havenow been largely corrected.

IntegRex technology is a lower-cost manufacturing processdeveloped by Eastman.

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

In 2009, Eastman had sales revenue of $5.0 billion andoperating earnings of $317 million. Other plastics businesses includecellulosic plastics, which are in a different division and are experiencing arevival.