Eastman considers PET sale as beverage demand weakens

26-Apr-2010 - Last updated on 27-Apr-2010 at 09:09 GMT

Eastman is considering the possible sale of its PET business as weak demand from the beverage industry dampens growth figures.

The PET business at Eastman achieved a turnover of $700m in 2009, but sales growth, which had been running higher than GDP at 5-8 per cent, began to slow at the beginning of 2008.

In light of this weakened performance, US-based Eastman has enlisted the help of its financial advisor Bank of America Merrill Lynch to review its strategic options, including a possible divestiture.

Beverage packaging demand

One of the main concerns for the company is the demand situation in the drinks sector. Beverage packaging makes up the single largest application for PET in the US, but in recent times thirst for the material has begun to dry up.

Eastman told BeverageDaily.com: “A slowdown in the growth of packaged beverages, coupled with industry-wide down-gauging initiatives, has negatively impacted the demand growth rates of the US PET industry beginning in 2008.”

While lightweighting and the recession hit the demand side of the equation there are emerging over-capacity concerns as PET production assets whose construction was initiated before the recent slowdown continue to come on-line.

Lightweighting limits

Looking forward, Eastman does expect demand from the beverage industry to pick up as lightweighting efforts reach practical limits and the economy moves out of recession.

Eastman said: “We believe that the impact of down-gauging will slow, as many beverage producers already use packages which are at, or near, the practical limit. Therefore, as the market for packaged beverages resumes its growth in post-recessionary times, we expect PET demand growth to more nearly mirror those growth rates.”

Nevertheless, a divestiture of the PET business, which is part of the Performance Polymers segment at Eastman, remains a possibility.

“The PET industry is very challenging. We have taken actions to improve our business, but we have been disappointed with the results for several years. We want to determine what our strategic options are, including whether we are the best owner.”