The much-discussed consolidation of the North American PET resin market became reality in a 19-day period that began in late October.
On Oct. 25, Eastman Chemical Co. confirmed that it was selling its North American PET unit to rival PET maker DAK Americas LLC for $600 million in cash. That acquisition includes more than 1 billion million pounds of PET resin capacity in Columbia, S.C., and gives Charlotte, N.C.-based DAK a North American market share of more than 40 percent.
Then on Nov. 12, Indorama Ventures Public Co. Ltd. snagged the North American PET resin and fiber assets of Invista including plants in Spartanburg, S.C., and Querétaro, Mexico, in a deal worth $420 million. Indorama, of Bangkok, earlier this year opened a 1 billion-pound-capacity plant in Decatur, Ala.
Both Eastman and Invista earlier had announced their intentions to sell their PET businesses, citing declining profits and low growth. The Eastman unit that includes PET had posted operating losses of $57 million in 2008, $66 million in 2009 and $1 million in the first nine months of 2010. Privately held Invista does not provide financial data, but in recent years the firm had closed down major PET plants in Millhaven, Ontario, and Greer, S.C.
Essentially, the move has reduced the number of major PET makers in North America from five to three listing M&G group along with DAK and Indorama as major players. Wellman Inc. and Nan Ya Plastics Corp. occupy smaller positions in the market. Another producer could join the mix early next year if Selenis follows through with plans to convert a specialty resin plant in the Montreal area over to PET production.
PET market consultant John Maddox said the recent consolidations have to be a good thing because of the poor shape the North American PET field has been in recently.
These companies had been struggling to make returns on investments, said Maddox, who is president of SBA-CCI Inc. in Jacksonville, Fla. The industry's been in bad shape. [PET resin makers] are being squeezed by raw material costs and by brand owners.
Consultant Mike Dewsbury, vice president of packaging with Resin Technology Inc. in Fort Worth, Texas, said the deals won't have an immediate impact on the health of the North American PET market.
It's the same health, just with different players, he said. Eastman and DAK both already are highly integrated [in raw materials] and Indorama and Invista aren't integrated, so nothing's going to change there.
Both Dewsbury and Maddox said that DAK might benefit from having lower overhead than a public company like Eastman does. Maddox added that lightweighting of PET bottles using less resin per bottle is a huge component of the market's decreased profitability, but public criticism of carbonated soft drinks and bottled water also have played a role.
The naysayers of plastic packaging and of carbonated soft drinks have done a good job, he said.
Neither consultant expects DAK or Indorama to shut down any of their recently acquired PET capacity right away, especially since the prices paid were a bit more than expected.
DAK and Indorama paid a premium for [Eastman and Invista], so I'd be hard pressed to say they'll shut down capacity and keep it down, Dewsbury said. They're not going to decimate what they just purchased.
From a PET buyer's perspective, however, consolidation usually isn't a good thing, since it reduces the number of players, which can result in more competitive pricing, both consultants said.
If you're a buyer, you want as many crazy people in the market as possible, Maddox joked.