Eastman Chemical Co. is looking to buy as well as sell, as the 90-year-old firm reshapes itself for 2010 and beyond, according to President and CEO Jim Rogers.
Company executives, civic officials, media and a few customers gathered at Eastman's massive Kingsport headquarters complex May 13 to mark the official launch of a new, dedicated production line for its Tritan-brand copolyester resin. The previously announced line brings on stream 66 million pounds of annual capacity, and the company says a second, similarly sized line already is under development.
Demand for the specialty resin, which Eastman has positioned as a polycarbonate alternative, has quadrupled in the past 12 months, while broadening its reach beyond the initial markets of reusable sports water bottles, housewares and small appliances, into medical, infant care, bulk water and signage.
But in the midst of those festivities, Rogers took time in an interview to discuss Eastman's possible divestiture of its well-known PET resins business, as well as the 10,000-employee firm's longer-term growth objectives, which include strong themes of sustainability and emerging markets.
PET projections
In regards to the company's PET business, which ranks as second-largest in North America, Rogers commented on the rationale behind hiring New York-based Bank of America Merrill Lynch last month as its financial adviser to “explore all options,” including possibly selling the business.
“We stopped short of saying we know we're going to sell it.” The question is, he said, “Are we the best owner of those assets? We should know the answer to that before year-end.”
But it would appear that Eastman is eager to exit PET, whose market prospects Rogers describes as “poor,” with lousy profit margins and very limited barriers to entry. Eastman hasn't made money in PET since 2005.
The 59-year-old Rogers, who joined Eastman in 1999 and assumed his current posts a year ago, lauded the company's 3-year-old PET process technology, called IntegRex, and said it has delivered all that was promised in terms of energy-input savings and other benefits. But he acknowledged that the now-resolved “mechanical problems” that hampered production and prompted a temporary shutdown late last year of Eastman's 1.16 billion-pound-capacity Columbia, S.C., PET plant “hurt our commercial footprint in terms of which market segments were represented.
“We are the last U.S. public company in the PET business,” he said.
Acquisition action
Rogers prefers to look forward, to the shape that tomorrow's Eastman may take. He is thrilled with the company's most recent acquisition — the March purchase of Rosemont, Ill.-based plasticizer manufacturer Genovique Specialities.
“We would have loved if it were twice as big as it was. Genovique lines up very well with us. As we're looking at growing the company, we're looking at some of the mega-trends like emerging markets, sustainability. We get an X in the box with both of those with Genovique.”
Rogers said he believes the deal makes Eastman the world's largest maker of non-phthalate plasticizers. And with Genovique's main manufacturing facility in Estonia, in Eastern Europe, and with a joint venture in Wuhan, China, (as well as a small operation in Maryland), it is active in some key emerging markets.
The purchase follows on the heels of two other moves Eastman made earlier this year — the first being the acquisition of Tongxiang Xinglong Fine Chemical Co. Ltd., a cellulose-based specialty polymers manufacturing facility near Shanghai, and the opening of an acetate fibers joint-venture plant it built in Ulsan, South Korea.
“We know we have to grow the company,” Rogers said. “Acquisitions are a fair way to do that. We think this is the right time in the cycle to be looking at acquisitions. We probably have a good five to six years to run for the chemical industry in terms of growth, at least. So you'd like to be doing your acquisitions on the front end of that cycle, which is where we are today. The same way you'd like to be doing your capacity expansions now. This is a great time to be coming out with a new product like Tritan.”
Dante Rutstrom couldn't agree more. The 24-year company veteran is vice president and general manager of Eastman's Specialty Plastics Business Organization, or SPBO, which includes all the firm's copolyester and cellulosic materials.
In the first quarter of 2010, the company's specialty plastics business reported a 59 percent jump in sales from the year-ago period, and operating earnings of $21 million, compared with a $13 million operating loss (excluding restructuring charges) for 2009's first quarter.
“The demand for copolyesters globally has been outstanding,” he said in an interview at the May 13 event. In the first quarter, for all SPBO products, “our volumes were up about 50 percent vs. Q1 of '09, and about 20 percent vs. Q4 of '09.
“Asia has recovered quite nicely,” Rutstrom said, “and that's where we're expecting a lot of our future growth. Asia's still hot, China in particular. Japan, as a sub-region, is not. … We've been pleased with our growth in North America; it's been double-digit.”
So what about the prospects of producing Tritan — which Eastman first introduced in late 2007 — outside the United States to serve this global demand?
“Most of our business, most of our assets are here in Kingsport,” Rutstrom explained. “We have some SPBO-related assets in South Carolina and in Kuantan [Malaysia]. Historically, we ended up here because we have a fully integrated site. Replicating that outside the U.S. has always been a bit of a challenge. We are certainly interested in having a footprint in Asia for my business. But at this point in time, it's hard to offset the value of integration. As we get to scale and critical mass in the region, that becomes more of a possibility.”
Capacity boost
Meantime, Eastman is preparing to expand Tritan capacity in Kingsport yet again. The company “has already invested capital in a monomer plant that is sized to support another polymer line with capacity similar to the one we've just celebrated opening,” said spokeswoman Tracy Broadwater, who suggested the timing for bringing that capacity on line is “under discussion.”
At the same time, the resin maker is touting the adoption of Tritan in the bulk water market. Greif Inc., a Delaware, Ohio-based maker of containers, drums and bottles, has confirmed that in North America it has added to its offerings 3-gallon and 5-gallon reusable water bottles made of Tritan for the home and office delivery market. Greif actually introduced both round and handled versions of the bottles in late January, but didn't identify Eastman as the resin supplier until the recent event in Kingsport.
Rick Volker, Greif's sales and marketing manager for water bottles, said the firm adopted the material in response to requests from customers that wanted an alternative to the traditional polycarbonate bottles. Eastman touts Tritan as being free of bisphenol A, which is used in the production of PC resin and which is facing legislative bans due to health-related concerns in food-contact applications.
Eastman also announced May 13 that “various third-party research laboratories using well-recognized methods” had tested Tritan and confirmed it to be free from both BPA and from estrogenic activity.
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