Trade War Helps Kill Sale of Eastman Chemical Texas Plants

(Bloomberg) -- President Donald Trump’s trade war has derailed Eastman Chemical Co.’s efforts to sell some factories in Texas.

After five years of talks with multiple parties to sell ethylene plants in Longview, Texas, the company is putting the effort on hold, Chief Financial Officer Curt Espeland said Friday. One reason is that a wave of new plants has cut spot prices for ethylene, a gas that is the foundation for 40 percent of chemicals and an ingredient in most plastics.

The other reason is the trade war. China has responded to U.S. tariffs with its own, targeting $5.4 billion of chemicals and plastics annually imported into the country, according to the American Chemistry Council, an industry group. Beijing is going after chemicals because shale fracking unleashed a torrent of inexpensive natural-gas feedstock that has made the U.S. the world’s low-cost producer, the council said.

“Current market conditions, combined with the current geopolitical environment on trade has made it very difficult to move forward at this time” with a sale of the Texas plants, Espeland said on an earnings conference call.

Eastman meanwhile is running the plants at reduced rates to limit the hit to earnings from selling low-priced ethylene. The Kingsport, Tennessee-based company also is changing raw materials to minimize ethylene output in favor of propylene, which is used for higher value products. Plant upgrades will allow the company to use a wider variety of raw materials.

“That buys us time to see if market conditions improve and to see whether the sale option comes back to life,” Espeland said.

Eastman reported second-quarter profit Thursday that topped the average of analyst estimates compiled by Bloomberg. The company maintained its forecast for a 10 percent to 14 percent increase in full-year earnings.

The shares fell 2 percent to $100.36 at 1:36 p.m. in New York. Eastman advanced 11 percent this year through Thursday, compared with a 1.5 percent decline of a Standard & Poor’s index of materials companies.

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