Eastman, world's largets PET supplier plans to significantly shrink business

Eastman, the world's leading supplier of PET for packaging plans to significantly shrink the business. The move, that will turn PET from Eastman's largest business segment into the company's smallest segment by the end of 2008, will be achieved by divesting or shutting down much of its conventional PET processes and investing in a new technology to produce the product. This restructuring will make Eastman third largest in the Americas, shrinking in size from the largest PET producer in the world. Eastman has been the world's leading supplier of PET, but strong worldwide demand has attracted various competitors to begin producing the cyclical commodity. As a result, competitors have overbuilt PET capacity in Asia, Europe is crowded with producers, and North America is facing a time of oversupply and declining demand. Eastman started the year with a capacity to produce 1.5 mln tons of PET. By the end of 2008, the company will have removed 80% of its conventional PET processes (over 1.2 mln tons of capacity). PET that represented 35% of Eastman's sales at the end of 2006, has today become a drain on the company's bottom line. In Q1-08, Eastmans' PET product lines posted a US$51 mln operating loss, followed by a US$13 mln operating loss in Q2 and a US$134 mln operating loss in Q3. Hoping to plug the leaks, Eastman sold its PET plant in San Rogue, Spain, earlier this year. And it's in the process of divesting its PET plants in Mexico and Argentina. Now, it's looking to divest its remaining overseas PET plants - one in Europoort in The Netherlands, which was built in 1998, and another in Workington in the United Kingdom, which has produced PET since 1988. The company has closed some of its older assets and opened a new plant based on IntegRex technology - a more efficient process to improve production and decrease cost. Eastman plans to increase capacity at the new IntegRex plant to more than 525,000 metric tons of PET by the end of 2008. By that time, the company also hopes to reduce its cost structure at the Columbia site by more than US$30 mln to reflect the changes in the plant's asset base. By end of 2008, Eastman's remaining PET capacity will all be based in North America, and IntegRex will represent more than 60% of it. But Eastman's new IntegRex technology is being challenged. Wellman Inc., a Fort Mill, S.C.-based chemical company that also manufactures PET, filed a patent infringement lawsuit against Eastman earlier this week, alleging Eastman is infringing on Wellman's patent with the new IntegRex technology.
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