US Eastman pursues cracker divestments, despite low ethylene price

HOUSTON (ICIS)–Eastman Chemical will pursue divesting its merchant ethylene cracker capacities and related assets – despite the currently low ethylene prices and pressured olefins margins, the top executives of the US-based producer said in an update on Friday.

The divestments include excess ethylene capacities at crackers on Eastman’s site in Longview, Texas.

CEO Mark Costa and chief financial officer (CFO) Curt Espeland said that US ethylene prices were currently disconnected from the rest of the world, being almost 20 cents/lb lower than global prices.

However, Eastman was looking for buyers who were looking beyond the currently unfavourable ethylene margins and understood the long-term value of olefins, they said in a webcast conference call on Eastman’s second-quarter earnings.

“We do have engaged buyers, who are very seriously considering [the assets],” Costa said, adding that it would take the greater part of this year to agree a deal.

The company has been pursuing options for the Longview merchant cracker capacities for a number of years, but the process stalled because of a dispute with Westlake Chemical over a common carrier ethylene pipeline out of Longview.

Costa said that Eastman, for its part, had intentionally not invested in new crackers or propane dehydrogenation (PDH) plants on the US Gulf Coast, because the company was convinced years ago that the industry would overbuild.

Low ethylene prices were a factor in the decline of second-quarter sales and operating earnings in Eastman’s chemicals intermediate segment. The segment’s second-quarter operating earnings fell to $15m, from $87m in the 2015 second quarter, with sales off 15% year on year, to $633m.

As for its 2016 full-year outlook, Eastman expects olefins margins to remain under pressure as the increase in oil prices has not yet translated into higher olefins prices, the executives said.

“Considering the low oil environment, excess global capacity in olefins and methanol, and increased competitive pressure due to slow economic growth, we expect second-half year [chemical intermediates] earnings to be below the first half, with sequential improvement in both the third and fourth quarters, which should continue into next year”, CFO Espeland said.

Chemical intermediates’ first-half operating earnings were $82m, on sales of $1.25bn.

During the call Costa also announced that Eastman would aim to cut costs by an additional $100m this year to ensure that it delivers attractive earnings growth next year.