Eastman Chemical Co. has high hopes for its “methanolysis” method of recycling waste plastic into the equivalent of “virgin” plastic, but its CEO said the company has dropped 2024 revenue targets for the product.
Eastman began producing its “R-DMT,” or recycled dimethyl terephthalate at scale in a newly built Kingsport facility earlier this year. The company had hoped it could gain net earnings of $75 million in 2024 from sales of the product, which it expects to be popular with companies looking for recycled packaging and product content. It is now forecasting that figure to be $50 million as Eastman continues working out kinks in processing some of the hard-to-recycle feedstocks that are expected to make its final products attractive for their “circular economy” qualities.
“We’ve been broadening the spectrum of different types of (hard to recycle feedstock) recently and we encountered some plugging issues in the front of the plant,” CEO Mark Costa said on a Friday conference call with investors after Eastman’s second-quarter earnings announcement. He added, though, that even the hiccups have provided some valuable information for Eastman.
“This is not about chemical impurities, it’s not about process chemistry,” Costa said. “It took us a few weeks to really understand what was going on, but we realized it was in the feedstock preparation and some of the fitness-for-use aspects of a few sources of material.”
Costa said some of the mechanical kinks that had limited production to about 70% of full capacity have now been resolved. Eastman did finish the second quarter with $337 million in net earnings and beat Wall Street estimates with an adjusted earnings rate of $2.15 per share.
He said Eastman was confident the changes would be effective, “and we’ll be running very hard with the facility as we go through (quarters three and four).”
Eastman’s process uses methanolysis to reduce hard-to-recycle waste plastic to its original molecular state for reuse in plastic production. Eastman expects the main end product to capture a large market share in durable plastic and packaging sectors because it removes plastic from the waste stream and makes progress toward a “sustainable economy.”
Pressed by a caller about whether the plant was now able to be at full production — it’s the first of at least three methanolysis facilities Eastman has planned — Costa said not quite yet.
“We’re actually in the process of ramping back up to higher (production) rates,” Costa said. “The sort of small mechanical change we made in the middle of the plant that was limiting rates we just implemented, and we’re ramping up towards those higher rates right now, so we’re not there yet.”
He said the process to make the technology workable has been “a journey.” In January 2021, Eastman announced it would invest about $250 million and have the Kingsport facility “mechanically complete” by the end of 2022. It has cost significantly more and taken significantly longer to reach this point.
“This is an incredibly complex plant to take garbage and turn it into clear, on-spec polymer that doesn’t have any materials of concern that can exist in that waste feedstock,” Costa said.
“We’ve made a lot of investments in purification and how to manage all these different feedstocks, and we’ve learned a lot over the last five months, six months of startup that I think is a huge competitive advantage for us, and frankly there’s a lot of strategic and intellectual property we’re gathering through this process.”
Costa said the methanolysis technology continues to attract buyers for its end product, which uses waste that generally can’t be used by mechanical recyclers. He cited customers like plastic water bottle maker Nalgene and cosmetic companies like L’Oreal and Estee Lauder as still interested in buying R-DMT for packaging, but he said other possibilities were starting to open.
“It’s not a cheap polymer, so you really have to have a compelling value proposition,” he said, adding that despite the premium price, some companies that use durable plastic are expressing interest.
“You have people like Black & Decker doing a trial run as we told you about in tools, and seeing that go very well with recycled content and expanding to a broader product line,” Costa said. He also mentioned a leading supplier of food service products for the airline industry that’s looking into using recycled packaging.
Costa said he expects brands that are coming out of a period of inventory “destocking” are looking at ways to differentiate themselves in the marketplace.
“I think those collaborations will be there, so I still feel like we’re on track to go from our incremental $50 million of EBITDA (earnings before income tax, depreciation and amortization) to $150 million of EBITDA by the end of next year.”
Sales revenue for the second quarter was 2% higher than a year ago, with sales volume up 6% but slightly lower selling prices reducing net gains. The company is projecting total earnings per share for all of 2024 to be between $7.40 and $7.85. Eastman’s stock price rose slightly after it beat earnings estimates and stood at $101.24 per share at the end of trading Monday.
Courtesy : wjhl.com
