Sustainability As A Specialty
Eastman positioning themselves to be a chemical company of the future
Welcome to the specialty chemicals issue of the newsletter. Today I’m trying to dive into what Eastman is up to with their business. From what I can tell they appear to be making sustainability their new specialty and it will become core to their business.
This issue and the next 2 are sponsored by:
Eastman has been making some serious moves in the last few years, but what are these moves adding up to?
Recently, they divested their tackifiers business to Synthomer and their tire additives business to One Rock Capital Partners and each represented a sale that Eastman considered to be non-core businesses. These divestments will generate about $1.8 billion in cash.
Eastman has also made some acquisitions and investments of their own. Both 3F Feed and Food and Premium Shield were acquisitions in 2021 and there was an announcement in 2021 that Eastman would be building a polyethylene terephthalate methanolysis plant in Kingsport Tennessee. In January of this year Eastman announced a $1 billion investment for a much larger similar facility in France.
I think Eastman is trying to become a chemical company of the future. Their product is the same stuff they have been selling now, but in a more sustainable way. They are getting there through incremental innovation and the scale at which Eastman can operate. This has been in the works for years and it’s been built through incremental innovation via research and development.
Eastman operates on what they call an innovation model, which is mostly location dependent in Kingsport Tennessee. I’ve heard it’s remote, but the low cost of living and above average compensation for people on their product development teams has likely led to some long stable careers for scientists. You need time to do world changing research and this has been paying off for Eastman for both their own products and for licensing their intellectual property to companies like Avantium and Origin Materials. Further, Eastman is doing this with an investment in R&D at about 2.42% of sales based on 3Q2021 numbers–talk about lean. The investment in France will bring a new center for R&D around recycling plastic waste.
The board and senior leadership team at Eastman are positioning the company to capture three big macro trends according to their investor day presentation back in December 2021:
Caring for Society via Health and Wellness
Climate Change
Circular Materials
Eastman believes that this is where the high margin high volume specialty business is for the future as they also try to reach net zero emissions in their own operations by 2050 (they’ve got some time). Eastman plans on riding these macro trends towards higher profitability, more revenue for shareholders, and doing good for the planet and society too.
First, what are Eastman’s core competencies and how do those competencies branch out to these three macrotrends? According to their recent Innovation Day presentation they are:
Cellulose Esters
Polyethylene Terephthalate and Copolyesters
Olefins
Alkylamines
Cellulose Acetates and Other Ester
Cellulose acetate was the first injection moldable plastic that was ever synthesized and it was made by essentially boiling cellulose, a paper pulp mill derivative, in acetic anhydride (kind of like the stuff that makes vinegar). My very first peer reviewed paper was actually in cellulose acetate degradation. Eastman has been looking to take their cellulose ester capability anywhere they can get it including biodegradable food packaging, elastomer modifiers, film forming materials, and textiles to name a few. Eastman released Naia™ back in 2018 and they have been pushing it into the apparel industry ever since. Here is a sponsored WWD article detailing the benefits and Textile World tells us this isn’t our grandparents’ rayon:
[The] new and improved cellulosic fiber offers several advantages over the original fiber including machine washability, improved dimensional stability, stain release and wrinkle recovery. It also has a silky hand, natural luster and soft drape; wicks moisture; dries quickly; is breathable; does not pill; and is hypoallergenic. All of these characteristics are inherent to the fiber. In addition, it is thermoplastic and can be heat-treated to provide various effects.
Eastman recently announced an expansion of capacity for Naia in Barcelona, Spain by 30%. The big benefit of cellulose acetate is that the majority of the carbon is renewable because it’s from cellulose so it makes for a great sustainability story. Changing the esters away from acetates can also lead to new properties as well as blending cellulose acetate filaments with pure cellulose fibers. Cellulose acetate has been around since 1865 and incremental innovation is how we get to where we are now.
Polyester Recycling
Eastman Kodak was one of the first large chemical companies to explore what is known as “advanced recycling” of polyethylene terephthalate back in the 1990s. They eventually had to close down the operations due to them not being profitable, but in 2021 Eastman (they dropped Kodak) announced plans to get back into the recycling game. This is somewhat ironic because Eastman exited the business of making PET back in 2016 when they sold the business to DAK for about $600 million.
While Eastman may have exited the commoditized PET business I suspect their new venture into their methanolysis plant will actually give them better flexibility around their flagship copolyester known as Tritan and its sustainable cousin—Tritan Renew. If you’ve used a plastic syringe or a reusable water bottle then you’ve probably used something made from Tritan. Essentially, Eastman is using Tritan for a lot of the same consumer applications that polycarbonate once had, but BPA free. You can read all about copolyesters here, but you can think about it as modifying PET to have specific end properties by using different amounts of monomers.
Adding in the molecular recycling facility in Kingsport will enable Eastman to use more PET plastic waste in making different grades of Tritan. It’s a great story about circular materials and it should generate 20-30% less greenhouse gas emissions according to their presentation.
Put Up The Money - Eastman Investing $1 Billion in Plastics Recycling In France
Funnily enough as I was researching Eastman and writing this article they announced a billion dollar investment into another molecular recycling facility in France capable of handling 160,000 metric tons of plastic waste. Eastman plans to build out an innovation center to support the plant and is aiming for creating about 350 direct jobs and 1500 indirect jobs with the project. I suspect the indirect jobs will be due to all the services that the new facility will need such as a service to pick up and clean the uniforms and lab coats that the operators and scientists will be wearing.
I suspect we will see more grades and version of Tritan Renew in the coming years. It will be interesting to see what the French government does to support Eastman in this significant investment, especially considering they just banned single use plastics for fruits and vegetables. If anything this is negative pressure on polethylene and polypropylene, but potentially valuable for more readily reusable polymers such as copolyesters.
A Message From My Sponsor
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How Is Eastman Funding These Internal Investments?
Divestments help with the funding of these projects (see the $1.8 in cash generated by the divestments I wrote about above). The other parts of the business that are not as headline worthy are the olefins, alkylamines, and coating additives that generate significant revenue for the company. I expect these operations to be run for as much cash as possible to fund the push towards sustainable circular materials, but they play a role in the three macrotrends as well.
Eastman makes vinyl monomers such as vinyl butyral which is used in glass lamination under the trade names Saflex and Vanceva. If you’ve ever formulated a latex coating then you’ve probably used a coalescing agent such as Texanol. Apparently, alkyl amines are used a lot in nutrition and agriculture and I can see how the 3F acquisition fits into the health and wellness macrotrend.
Window lamination and window glazing can have a big impact on how much heat enters or exits through the glass. Reflective coatings can bounce that heat back out into space or towards your neighbor’s house. And animals have to eat too.
If you think that I’m reaching to try and justify how the other parts of Eastman’s business factor into climate change and caring for society via health and wellness then trust your instincts. I suspect that these other parts of Eastman’s business will be used to return cash to shareholders and give the product teams at Eastman the time needed try to bring a circular materials economy to market.
Everything old is new again.