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Subject:  Re: Eastman Chemicals buys Solutia Date:  1/30/2012  1:56 AM
Author:  pauleckler Number:  750 of 821

Eastman is a large vertically integrated producer. Their basic raw material has traditionally been cellulose, initially for cellulose nitrate film stock. That business is still in Kingsport, but the munitions part of it is now done by a spinoff called Holston Engineering (last I heard, but I might be out of date.)

Safety film brought a need for acetic anhydride for cellulose acetate. They were into polyester fibers and films for a while in the days of audio and video tape but I think they got out of that part, which became a drag on earnings.

Last time I was in Kingsport the odor of butyric acid was pervasive. That is oxo process chemistry from propylene. I think they use butyric to modify some of their cellulosics. They also make propionaldehyde and probably propionic acid (mostly sold as a bread mold inhibitor). They get isobutyraldehyde as a coproduct and from that they make diols used in polyester resins for paints and inks. And they now offer other diols made especially for that industry.

Most of what they list are uses of cellulose derivatives. Cellulose triacetate fibers and films, cigarette filter tow.

Solutia brings them specialty films and coated films as well as aspects like rubber chemicals.

These are not high high technology products. Most are ancient. Some over 50 years old. But they make them efficiently making it hard for others to outdo them.

In chemicals we are forever debating what is the difference between a true specialty (customized to a single use or even customer) vs a high value commodity that supports higher margins. Most chemical companies try to avoid the low margin commodities, or make only enough to use/buy raw materials efficiently, but the money is made on higher margin products however defined. Eastman Chemicals in classical portfolio management sells or spins off its low margin businesses and uses the cash generated to buy other companies when the price is right, so they can again sort through their businesses and keep the ones with the best margin and growth potential.

Some do this better than others, but those that do it well live to continue fighting. Those that don't go the way of Eastman Kodak.
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