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Eastman might pull plug on PET business

Staff Report • Feb 3, 2010 at 12:00 AM

KINGSPORT — At one time Eastman Chemical Co. was the world’s leading supplier of polyethylene terephthalate (PET) for packaging.

Now the company is trying to resuscitate the business, but it isn’t ruling out pulling the plug on PET altogether.

Eastman President and CEO Jim Rogers told the Times-News Wednesday that PET — or the company’s performance polymers business — is a drain on earnings and hasn’t made money for the company since 2005.

The business lost as much as $62 million in 2009, including $34 million in the fourth quarter.

The loss is hard to swallow.

“Our patience is measured in months, not years,” Rogers said Wednesday.

Eastman has worked to shrink its PET business in the past few years. It sold PET plants in Spain, Rotterdam, Mexico, Argentina, and Workington, England.

The company’s only remaining PET plant is located in Columbia, S.C., where it employs 420 people.

Eastman has pumped millions of dollars into the South Carolina plant to boost the business. In 2004, the company announced it had discovered breakthrough technology to produce PET and invested $100 million to construct a new plant and supporting infrastructure at the Columbia site. The new IntegRex technology was expected to produce PET more efficiently to meet growing demand.

But the IntegRex operation has been plagued by operational challenges. In December, the company temporarily shut down the South Carolina plant in hopes of fixing the problems. Rogers said Wednesday the operation is now running smoothly.

“The first step was to get it running well operationally. We declared victory. We’re hoping it’s not a premature victory. It’s only been a short period of time that it’s run at the higher levels. But it ran at the maximum level we expected, and it ran at very high quality. That’s exactly what you want to see. So I think we have nipped those operational issues in the bud,” Rogers said.

He said the next challenge depends on the marketplace. Competition has gotten tougher, and competitors have constructed new plants and added capacity in recent years. Meanwhile, Eastman has lost business opportunities due to operational problems.

“Now we’re fighting our way back up,” Rogers said.

“When you get to that point, that’s when you truly get a look at what the value of the business is — how does it look profitability-wise? That’s when you say, ‘Am I the highest and best user of this asset?’ We’ll see,” he said.

He said the second quarter is typically the best for the PET business due to its seasonal nature. PET is used in plastic bottles, including bottles for water and soda, and more of those are consumed during the summer months.

Rogers said he’s hoping Eastman will be able to get back into the high value-added markets, such as carbonated soft drink bottles, to boost the business.

“I think the real test is going to come in the second quarter to see just how much our guys have been able to do about demonstrating to the markets that we’ve got our act together now, and we deserve our fair piece of those higher-value segments,” Rogers said.

“We’re going to get through the second quarter and see how we do, and then we’ll take a look,” he said.

“What we’ve said all along is what we should do for any business — is make sure you’re the highest and best owner of the business. But right now, our heads are all around creating value and what can we do to improve that commercial footprint,” he said.

Eastman is headquartered in Kingsport and employs about 6,800 people here. It does not produce PET in Kingsport.

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