Hey, good morning, everyone. Our next fireside chat will be with Mark Costa, Chairman and CEO of Eastman Chemical Company. Mark has overseen the launch of Eastman's molecular recycling technologies, significant advances that help solve the waste crisis and climate change. Under Mark's leadership, Eastman has seen innovative growth across industries like agriculture, consumer goods, personal care, transportation, and textiles. Here to tell us more about Eastman's businesses and opportunities in circular plastics, please welcome Mark Costa.
It's great to be here. Look forward to the conversation.
Absolutely. So maybe let's first start, you know, big picture and, you know, touch on global demand trends across each of the businesses. So, you know, what are you seeing in the fourth quarter in terms of destocking, underlying demand, and maybe where you're most positive on the setup for next year?
Sure. So what I'd say, overall, we're not seeing any sort of significant improvement in the underlying economies at the end market point of view. I think they remain challenged across the world, as they have been through most of the year. But we are seeing good progress on the destocking side. So, most of the stable markets, as we call it, you know, whether it's personal care, water treatment, medical, things like that, the destocking, I think, will mostly play itself out this year. And even in consumer durables or building construction, we think most of the destocking is over from what our customers are telling us. And I'd say that's sort of globally true. The two markets that, you know, do actually still have destocking going on through this quarter are medical and ag.
Those two markets, along with consumer packaging, really didn't start destocking until May of this year, where everything else started in the fourth quarter of last year. So they just got started late, and they're still in the process of finishing what they're doing. We expect medical probably will be done by the end of this year. Ag, you know, there's a lot of debate if you talk to the customers in the ag sector on exactly what might sort of drift into in the first quarter, but, you know, profitability of farmers is really good. You know, their desire to invest in crop protection, I think is reasonable, expect to be at least normal. So it's really just a destocking question on to what degree, you know, volume ramps up in the first quarter for planting season.
We expect it sequentially to be better than this quarter, but to what degree? It's a little hard to call on the ag side. So overall, I'd say, you know, the markets are relatively good, but, you know, the primary underlying economies, as I think everyone can read in the newspaper every day, is there's not a lot of signs of any sort of mature recovery on that front. So if from a quarter point of view, we say, you know, demand is sort of playing out as we expect, but December is always a rodeo. You know, you just don't know what's gonna happen. So, you know, up through now, it's, you know, sort of on track, but, you know, we don't know what December will bring. So there's always that.
Spreads are coming in sort of as we expect on the sort of price-cost relationship. Costs are fine. You know, we are still managing and running the company for cash. So, you know, how we manage our assets and utilization rates to make sure we hit our cash target is also something that, you know, we're gonna still stay prioritized on for the quarter. But we feel good about the sort of, you know, range that we have right now on a, on a earnings point of view for the quarter.
Got it. And then just, you know, very briefly on just that destocking trend. You know, there's always been this thesis that, you know, maybe there are, you know, specific end markets or products which maybe were destocked to dangerously low levels.
Yeah.
Is there anything that you see where you might see some sort of a tailwind from normalization into next year?
First of all, I think that the approach we're taking about next year when it comes to markets is to be sort of neutral about it. In other words, I don't know, right? I'm not gonna start trying to call market recovery or markets getting worse. So as we built our comments around, you know, what we think could happen with our earnings and cash next year, we sort of took a market neutral point of view, not because I know the answer, it's because I don't.
Right.
Right? What I'd say is, you know, some markets we're being very careful about, like durables and building construction. There are stable markets where we do see modest recovery from low levels, whether it's, you know, medical, once its destocking is over, personal care, water treatment, these kind of markets that are pretty sort of inelastic in long-term demand, those will start recovering at modest levels. When it comes to restocking, to your question, I think it's fair to say that after five quarters of aggressive destocking in many markets, there's a good probability that they've gone too far in their aggression, because we're all saying the same thing to each other. No matter where you go, I'm sure across this meeting or with customers, everyone's, like, obsessed on getting inventory to very low levels.
And I think people are being very cautious about rebuilding. So there will be, at some point, you know, not just sort of demand going back to a more normalized level in these markets, but restocking to go with it. If history is an indicator, that restocking can be the same kind of bullwhip on the way up as it was on the way down. None of that is in our comments about next year-
Right
... when we think about our bridge, so that would be upside. And, you know, it will happen. It's not a question of if, it's just a question of when, and I don't want to get caught in trying to call the when with all the uncertainty we have right now.
Got it. And then maybe just to, you know, put it all together on 2024, I appreciate you, you know, sort of talked about most of the things that are, you know, largely out of your control at this point on the demand picture, but, you know, what's the latest thinking in terms of, you know, the return to those, you know, 20% EBITDA margins, long-term EPS growth target of 8%-12%? You know, can we get back on that track next year, just given some of the things you do have in your control?
Yeah, no, well, I think that we can do a lot better than 8%-12% recovery-
Yeah
- in EPS from this year to next year.
Yes.
So, and then I would say the 8%-12% comment really applies to 2025 relative to 2024, and yes, we think we can do that. And we certainly get the cash to come back with it. When it comes to next year, what we tried to do is, like I said, not make a bet on up or down on markets, you all can do that, or on sort of raw material costs, right? So if you have just a neutral-
Yeah
point of view on that, what can our earnings do? And it starts with volume mix being the biggest headwind this year. So we had a $450 million volume mix headwind this year relative to last year, and that is just the variable margin part. It does. That 450 doesn't include asset utilization. So that's a big number. You know, destocking, as we've said, this year, is at least a third of that number. Could be more, but let's call it a third. So you got a $150 million of recovery next year versus this year with just a lack of destocking in a stable market. Then you got, like I said, a bit of modest recovery in some stable markets.
Not assuming any recovery in durables or housing, that would be upside, relative to how we sort of look at our forecast. Autos being somewhat, you know, improving, to be fair. So you've got a bit of that market growth in there on top of the 150, and then you got the innovation-driven growth, which is substantial for us. You've got the new methanolysis plant that we're in the middle of starting up right now. I'm sure we'll come back to that later. But that's worth about $75 million, net of EBITDA, when you put all the pieces of that plant together, right? So operating costs being offset by pre-production costs, revenue coming in, net all together, $75 million incremental tailwind. And then you've got $75 million at asset utilization.
So we went beyond following demand to pull inventory down aggressively to generate cash this year. So that additional aggression to generate cash is about $75 million asset utilization of headwind this year, relative to last year, that doesn't repeat itself, even if volume is the same next year, you got a $75 million tailwind. So all those add up to some nice... We also have a $50 million headwind in currency that we had this year, or a $110 million headwind in pension that we had this year, right? So there are, there are a bunch of headwinds we had relative to last year that don't repeat. So that positions you in a, in a pretty good position, to get some earnings to recover and the cash that goes with it, as we go into next year.
The last question that goes with this is what's gonna happen with the price-cost relationship and the specialties? You know, are you gonna have a spread tailwind or, you know, a price-cost tailwind or, or headwind. And I think we're gonna have a modest headwind, but there are, you know, there's adjustments in prices we're gonna make in some markets where raw materials have come off a lot. Customers know it, you got to start treating them with, with some respect because we haven't given much price back outside of cost pass-through contracts, and especially at all this year. So there'll be some adjustment, but we still have raw material trapped in inventory at lower cost that still needs to flow out. So how those two net out to each other next year relative to this year could be neutral.
It's certainly not going to be a tailwind, but it may not be as that much of a headwind.
So have you started to see some of that price get back on the specialty side, you know-
Not yet.
Right.
But we're expecting that, you know, when the destocking ends, and you've got some relief in the market, some confidence, and therefore, when you talk about giving some price up for more volume-
Yeah
... you know, that's a fine conversation to have. But right now, we just been giving up more price for less volume.
Right. Right.
You know, and so that's, you know, why do that, right?
And then are there any pockets where price is, you know, defensive, and you expect it to hold pretty strong into next year, or is it, you know, pretty broad-based?
I would say most of the specialty pricing will hold in strong. There are certain markets in both advanced materials and AFP we've walked away from this year because pricing just got-
Right
... silly, right? Most, for example, selling into architectural paint in China, you know, when it's in total freefall, is not a very profitable endeavor.
Right.
So you know, we've walked away from some volume that had no profit, you know, so, so there is some of that in the volume story, that's in that other two-thirds. But the places where we've walked away, we never had that much profit margin in those applications, so-
Got it. Makes sense.
It wasn't that big of a deal on earnings.
Yeah, yeah. And then maybe just digging into the specialty businesses a bit-
Yeah
... maybe starting with advanced materials, you know, it's had a challenging couple of years. You know, what do you think it takes to get back to more sort of foundational $500 million earnings there? Maybe excluding methanolysis for now. We can get on to that later, but-
Volume.
Yeah.
So, this is a volume story. You know, if you look at the $450 million of volume mix that came off, a good portion of that is in advanced materials, associated with the specialty plastics business, as well as the interlayers going into buildings, you know, laminated construction, windows. So those markets certainly had challenges. And, you know, as you think about where we were headed before all this, right? I'm painfully aware of my six-
Yeah
... and $700 million numbers in the past, of where we wanted to be in 2022 and 2023. Those were under a different macroeconomic assumption-
Yeah
... of an economy that was growing.
Right.
Right. And we would be at those numbers, you know, if you were back at, you know, that, those sort of economic conditions. In fact, we'd probably be above it because our margins per kg are a bit better, you know, with the price discipline we've had. So it is predominantly a volume story. So a good portion of that, that $150 million comes back into this- into the advanced materials business from the destocking that I mentioned earlier-
Yeah
... not being around anymore. You do have some auto growth in there. You have some underlying stable markets and consumable packaging and things like that, that'll come back modestly. And sort of how the earnings recover, margins are better, so that's helpful. And then you know, asset utilization. So over 40 of the $75 million asset utilization is in advanced material. So that, you know, comes back as you sort of get back to normal operations. And then you've got the Kingsport methanolysis and other innovations. So it's not just about Kingsport and that 75, only 50 of which shows up, by the way, in advanced materials of the 75, because the-
Right
... pre-production expense that goes away is over in corporate other. But you got that $50 showing up here in EBITDA. And then, you've got other innovation occurring through the portfolio, the paint protection films, the heads-up displays, the EV growth that are all, you know, giving us above market growth due to the innovation that we have in that space. So we feel good about it, you know, getting back, you know, you know, to a, to a much healthier number and then continue to accelerate as markets recover.
Got it. That's helpful. And then briefly on, you know, AFP, you know, how much of a recovery should we expect into next year? And maybe what are some of the medium to long-term trends underpinning this business?
So AFP is a great business, serves a great set of, you know, stable markets. It's very connected to building construction, automotive, ag, and how we've sort of resegmented the business, as well as the fluids business. And, you know, it's the same story, it's just the numbers are smaller on everything compared to advanced materials. So you'll have a destocking there, and some of that will come back. You know, you'll have some modest growth in the care chemicals and the personal care and those kind of markets, same thing. You'll have the spread dynamic is a bit different because there's a lot of cost pass-through contracts in advance, in the Additives and functional products business.
So spreads are relatively stable from last year to this year to next year, as a result of that. But there's some timing, you know, of that, so it could be a bit of a spread headwind next year, just because of the timing of how the contracts are changing, you know, from this year, which have been a little bit better, there'll be a little bit of a catch-up next year. So overall, I, you know, I think you'll, you'll see recovery in that business, and there's always a little bit of timing around fluids, you know, when projects happen from year to year, that, you know, has to be worked in.
And if I think back to, you know, the beginning of the year, maybe first quarter, second quarter, you know, the outlook was maybe a little bit rosier. I think a lot of that was predicated on some of these stable end markets staying stable and not having these same sorts of destocking. And, you know, I appreciate that this is pretty unprecedented, but, you know, there was this, you know, also belief that, you know, auto would remain strong and, you know, help hold in, and you'd have, you know, strong sales from that business. So can you maybe talk about how that side of the business has performed? You know, are you exceeding your expectations in terms of, you know, whether it's premium content for EVs or, you know, different premium products?
Yeah.
You know, has it, has it also been a laggard as well?
Yeah. So from an innovation point of view, it's very much meeting expectations, right? So the growth that we see in paint protection films and heads-up display on the EVs, which is remarkable, you have 3.5 times as many square meters-
Yeah
... in an EV as an ICE car. I'll come back to explain that, but those are all very much present. You know, you see in the press where EVs aren't growing quite as fast as everyone expected, so obviously that moderates the rate at which, you know, we sort of get that additional growth. But they're still growing, you know, faster than the ICE cars and still helping on a mixed basis. The what we sell into EVs is very high margin, so it's not just volume, it's mixed.
Yeah.
That, that's very advantageous. What about auto, by the way, on the coating side, is just gonna track market demand.
Yeah. Yeah.
Those are all going well. I'd say the disappointment's been China auto demand. We, you know, definitely went in the year expecting, you know, some amount of growth in autos in China, and that's, you know, not played out, just in the market, in market conditions.
Got it. Got it.
But overall, I'd say we feel good about the auto business.
Got it. And then across, you know, you know, all of the businesses, you've been on this journey to upgrade the portfolio over time, you know, to be more specialty and, you know. Do you think, you know, the declines in the last, you know, year, two years, you know, some of that variable margin that you talked about expanding over time, like, has this changed your thinking about the portfolio at all?
It hasn't. I mean, I think that the quality of the portfolio has been improved by a lot of different actions, right? First of all, I think we're pretty disciplined owners, so when we have a business underperforming, we'll face that reality and divest it like we did with Texas City, right? That's gonna happen, you know, it's the nature of this industry. Sometimes innovation is sufficient to offset, you know, competitive issues, and sometimes-
Right
... unfortunately, it's not. You know, overall, I'd say the innovation is, you know, putting aside the current macro-
Yeah
... you know, where we are in the innovation side of the advanced materials business is very much where we want to be. We're seeing great progress in the programs we're pursuing it as well functional products, getting the tow industry to recover, as it has dramatically from $140 million to over $410 million this year, is a huge amount of cash and earnings, and stability for that stream. So we feel, you know, good about sort of the core and how it's sort of holding up.
Yeah.
Then on top of that, you've got the $450 million EBITDA coming from the three plants, on the circular polyester side. The cellulosic side is actually going better than expected. So we've had some great progress being made there, not just in the textiles, but also in Aventa, which is this food service, you know, set of applications where we have a foamed cellulose acetate to be a drop-in replacement of polystyrene for food service. You know, think of the protein trays in the grocery store or, you know, the, clamshells or whatever else. So that's a huge market that's just starting to move for us. So we feel really good about those two. So you put those together, that's a lot of earnings in the future. And you just have that core innovation continuing to deliver growth, right?
So in that sense, I think we feel good about the portfolio. Selling Texas City was sort of the last, you know, standalone sort of commodity plant, and we got a great amount of cash for it, so we feel very good about that. And it's about execution, you know, we just need execution, and we need some stability in the marketplace.
Let's talk a little bit about tow.
Sure.
So on just the fibers business, you had the contract resets there, and you're, you're expecting some modest growth on a record 2023 earnings. So, where does this industry stand currently, and, you know, how have you been able to deliver this sort of improvement in an industry that's largely in structural decline?
Yeah, so there's a long history to this story. So it used to be at these levels back in 2000-
Right
... 14, and it's been a rough decade, you know, of, of decline. That was a industry structure question, right? So we had a significant drop in demand of imports going into China. That is what disrupted the market in 2015. And that happened because they were backward integrating, and that happened because, like now, they had a massive destocking event where they had, they collect tax revenue at wholesale level in China for all the revenue they generate, and the number one source of tax revenue in China is cigarettes. So tax were very important. They had to grow it with GDP every year, and since they collected it wholesale, they were shoving it into the retail channel, and created a massive inventory problem.
When they had the corruption crackdown, they, you know, all the gifting and partying and everything else that was going on in China, which consumed a lot of cigarettes, went away. So there was all these things that happened that were sort of unique to that 2015-16 time frame. But what happened as a result of that is, we collectively took action, you know, in different places. So, you know, we rationalized capacity. Other companies decided they had excess capacity, and they rationalized their capacity. So about 15% of capacity was taken out or repurposed, in the industry, because we shifted ours to making textiles. And then, we also ran into issues, serving the new product forms, you know, for slims or TiO2 free or these IQOS heat-not-burn cigarettes are more complicated to make.
So we effectively lost about 10%-15% of capacity. So significant amount of effective capacity came out of the industry, and the demand turned out not to decline nearly as much as we thought. So it only declined about 1% versus 2%-3%, because heat-not-burn was growing so fast. It was growing, like, 15%. And so, you know, 10% down, 25%-35% capacity out, but it-
Yeah.
utilization back into the nineties. And you know, the margins had gotten to the point where, you know, we had very sort of rational conversations with customers that we needed better margins to invest in reliability. The price, the cost of a filter in a cigarette is a rounding error, so they don't want to run out of supply. That would be very bad for their profitability. And so, you know, we came up with long-term contracts that also now adjust, you know, to, you know, the changes in energy and, and pulp so that the margins will be more stable. And we feel good about 2024, feel good about 2025, and the contracts we have in place, we're making really good progress on 2026.
For at least three years, we think, you know, the earnings and the margin stability and the significant cash this business throws out is pretty reliable.
Just to be clear, would that come, you know, over the next, you know, 5, 10 years, let's say, would that come with, you know, additional repurposing of, you know, some of yours and the industry's capacity?
It can. We have a unique advantage in that we've done a lot of R&D in specialty cellulosics that allow us to grow in these other markets-
Yeah.
like the Aventa food packaging I just told you about or the textile business. There's a series of other things we're doing as well, so that allows us. We've gone from optimizing a stream to figuring out how to do bottleneck because demand, as we look forward, is gonna be well above our capacity, which is a great place to be. And we feel good about that, and it's also because we have a solid-fed gasifier to make the anhydride, to make the cellulosic. All of our competitors are natural gas-based, so we have the unique ability to put recycled content into the product.
Yeah.
and create closed loops on that. We can do textile takeback programs, you know, back into textiles, and we can take all kinds of waste that cannot be recycled, you know, safely, through some other technologies. But with our capability, we can pretty much take garbage, true garbage, in the front end of this facility. So it allows us to, you know, have a value proposition that's pretty differentiated.
Got it. I think, you know, I think it's, it's a good time to transition over to some of the method-
Sure.
Methanolysis projects. So, you know, maybe let's just start with an update on where each of these projects stand. And, I do feel like over the past couple of quarters, there's maybe been some indication that, you know, the macro environment that we're in has maybe slowed some of these customer conversations or potential optics going forward. So maybe any updates, what we're seeing there?
So on the first project, which is the Kingsport methanolysis project, you know, customers are there, demand is fine, except for the fact that, you know, consumer durable demand is not where we want it to be.
Right.
From an end market point of view. But the interest from the customers in launching products with recycled content is still very much intact. So we feel good about that, along with the pricing that, you know, supports the economics. The feedstock is very much in place. No problems there. In fact, as you saw in the video, we attached to the third quarter call, we have a very large pile of feedstock ready to go.
Yeah.
It's an amazing facility to see it. So, yeah, the construction is now complete, and we're in the startup commissioning phase of the facility. And so far, that's going well. So we still feel like we're on track to have revenue around the end of the year. You know, it is a big project, a big plant. We sort of never know what's gonna happen-
Right.
-when we hit the big red button on, on starting. But we're throwing everything we got at trying to address any issues, you know, ahead of time and identify them. So we feel pretty good about that project, and that's really the last step to prove out the question, right? We've got the answer on the customers, we have the answer on feedstock. Does the plant run? Is the big question for a lot of investors that needs to be addressed, and I think, you know, we'll hopefully resolve that over the next, you know, month or two. And and sort of put all that, those questions to rest, right?
Right.
So then it gets to, okay, that's great, and that supports your specialty business, but can you really scale this up-
Right.
in significant numbers of plants, you know, to serve a much bigger market that is PET and textiles? And that's what the second and third project do. So the second project is in France. It's actually gonna be half specialty and half PET textiles. And so that plant, feedstock's already secured, 75% more, more than 40... 75% on long-term contracts, so that was important milestone. This is where we've mentioned customers aren't completely finalized yet.
Right.
And we started intentionally late with them because we wanted to get the Pepsi contract sorted out and have a model before we really started going after this sort of business in Europe. So we're just in the middle of doing that. I think the conversations are going okay. The market dynamics, as you mentioned, did change, so the price of PET was sort of normal for fossil-based PET, but the premium of rPET was well above that in 2021 and 2022, when the market really got soft, especially in Asia, and they started, frankly, dumping, you know, their excess capacity, both fossil-based PET and recycled PET into the European market. You know, it caused the prices to go down right now. So that has become a distraction.
It's really a distraction when you think about it, because the regulation in Europe requires the recycled PET to be made from local packaging disposed of in Europe, which makes sense.
Right.
They're trying to solve their own waste problem, not someone else's. So as that starts to be implemented, you know, the markets will sort of go back to, you know, normal, you know, with those implications coming in. And the third project, which is the one that's base-loaded by Pepsi, great project, you know, we feel good about the demand we have from them, plus, you know, P&G and a few other customers. So, you know, that feels good. Feedstock, I think we understand since we already have a supply chain built-
Right
... for the first plant. And so we're just, you know, working through the capital program right now. It's a little bit farther behind the engineering than the France one, and so we're just finishing the capital numbers and still pursuing incentives on that project with the Inflation Reduction Act.
Got it. Makes sense. Just, you know, given where we stand today, you know, just in terms of, you know, the M&A landscape, do you see, you know, future, you know, bolt-on opportunities or, you know, do you see greater value in, you know, keeping this investment for organic growth?
Our focus right now is very much the organic platforms. I mean, the, for $2.25 billion of capital and $450 million EBITDA is a very good multiple compared to anything you would pay in acquisition.
Right.
Right, you know, so it's 5.5 times versus, you know, whatever, 10-15, right? So from an ROIC and a, and a disciplined capital deployment point of view, it's the right thing to do. Bolt-on M&A is always, an option. We'll always consider and pursue those, but I would say it's gonna be very targeted and, and limited over the next couple of years, you know, relative to sort of the CapEx deployment on the organic growth side.
Got it.
Most analysis says organic growth is, you know, better valued once you deliver it.
Yeah, that's, that's helpful. And then just, you know, just, you know, the—any sort of, you know, you talked a little bit about, you know, the risk when we press the big red button there, but, you know, do you see any sort of risk beyond that for the earnings ramp for Kingsport next year, whether it's, you know, ability to get, you know, specialty premiums or, you know, anything that concerns you there? Well, let's just assume it starts up with-
Yeah, I mean, I think that, you know, we feel good about what the customers want and how we've built up that $75 million-
Yeah
... and the demand that they've you know put in front of us. Right? So but you know we could have a much more adverse macroeconomic environment that inhibits you know the rate of demand growth, and you know this won't be immune to that to some degree, right? So I think there's always that end market macro situation. But I think if the macro stays stable as it is, you know the guidance we gave you on this is pretty good.
Got it. And then just, you know, free cash flow has been a hallmark for Eastman. So, how do you see working capital next year, and what are the priorities, priorities for cash flow going forward?
So from an operating cash flow point of view, we're very focused on, you know, delivering operating cash flow similar to this year, with the sort of bridge of sources of growth next year. And we think that's doable. That will include some, you know, continued inventory management, but we've taken inventory down a lot this year. I don't expect there will be a lot of inventory management next year, relative to this year.
Right.
So, there'll be some, but it's more about cash earnings recovery, you know, as, as a way to bring in the cash. You have to remember, some of the headwinds this year is a bit deceptive from a cash point of view, right? $110 million headwind of pension accounting, which is a non-cash hit in this year versus last year, right? You know, and the $75 million headwind in asset utilization, that's generating cash-
Right
... right, this year, right? So you've got a lot of non-cash, you know, headwinds relative to last year. So some of this, like the $75 million, comes back, which is non-cash-
Right
... right, for next year. But earnings come back a lot, right, relative to this year, with the lack of destocking and everything else we talked about earlier. So when you put all that together, you know, it seems like similar cash flow seems about the right way to expect earnings for next year.
Got it. That's helpful.
But, you know, free cash flow is different because-
Yeah
... historically, we normally would spend $500 million-$600 million in CapEx, $300 million-$350 million is maintenance, and then the rest is growth capital.
Right.
Which we're still doing, but now you got the circular programs on top. So we made a choice to say, instead of doing M&A or buying back stock, we're gonna do an organic program.
Yeah.
That's why OCF makes more sense to look at-
Yeah
... the free cash flow.
That's helpful. Thought I'd maybe open it up for Q&A from the audience, if anyone has any questions. If not, I'll go back. Maybe let's go back to, you know, some of the opportunity you laid out with textiles, Naia, and then maybe some of the cellulosic recycling there. So, you know, help us maybe size the business there and the growth rates for that going forward.
So the textile business has been a great but small business, right? So, you know, we've been in the textile business forever, but there was limitations on what Naia fibers could do because they were relatively fragile, so it had to be dry cleaned. We worked on improving the strength of the product back when the tow business started to, you know, sort of decline in 2015, 2016, and improve the product so you can now wash it and it can go into women's wear, not just suit bindings and a much broader sort of product set. So that's created a lot of market opportunity, and then sensitivity on sustainable fabrics is very high in the fashion industry right now.
And now that we have a fabric that, textile that'll work in women's wear in a broader sense, you know, we're seeing a lot of interest and adoption on that product. And the main issue we have is just expanding capacity to keep up with demand, which is a high-class problem. So we feel good about that business, for the value proposition I talked about earlier, especially the end of life. The microfiber part is gonna be a bigger driver of growth in the beginning of life for a lot of these applications. And so Aventa is a lot earlier, but, we're in straws, so we finally have a good straw that you can all drink out of, and actually, it's not paper, and it functions properly, and it will completely compost in the landfill.
So that's a small market, but going forward right now, I can't name the brands, but, you know, you can think of some very large food service companies that are using it. And then you've got, the Aventa, which is a much bigger volume opportunity in the, in the packaging. So those are good. We have microbeads as well. So cosmetic, all the women's cosmetics have microbeads in them for texture and oil retention. They're very high-value products, not a lot of volume, but very high value. They're nylon and acrylic, and so legislation, especially in Europe, is going to go in place to actually ban that, and you have to replace it with something else.
Turns out that, you know, our biodegradability is tunable, on our cellulosics, and we have patents around how to make these microbeads that will fully biodegrade in the environment, you know, when they wash off. That's another, from an earnings point of view, significant opportunity that we're making great progress on with some of the major luxury brands. So there's a number of ways we're coming at this, along with eyewear, with recycle programs, etc. And it's about $200 million of EBITDA when you look at the potential from here to 2027.
Got it. Got it. That's helpful. And then just, you know, we didn't really—we maybe touched briefly just on intermediates business. So, you know, based on some of the factors you laid out, you know, in terms of not trying to make a call on demand next year, not trying to make a call on feedstock volatility, you know, where do you see, you know, spreads trending into next year? I know, I know propylene and propane spread, not as important as it's been, you know, from sort of legacy Eastman business.
Yeah.
But I think still important to understand what, you know, what sort of foundational or sort of trough-like earnings we should see for that business going forward.
Yeah, well, I would say this year is definitely a trough-like earnings situation. Certainly, the back half of this year is very trough. And what you have, you know, in the chemical intermediates business is, you know, businesses that now are primarily centered around first making intermediates for the specialty businesses, which is over 50% of where these, you know, assets, you know, and the products go. And then you sell the rest, just run at full utilization, right? And so as the markets recover, especially, we'll have less volume to sell next year than this year for a good reason, right? Because we're valuing-
Right.
our mix inside the portfolio. On the pro, on the propylene side, you know, the price of propylene is very depressed. It's about 40% lower than normal, because of a bunch of excess capacity that got added here and even more so in China. So the spread relationship between propylene and propane is very challenged. So there's a lot of upside to spread at some point, you know, as those markets sort of normalize, but I can't tell you when that's gonna happen.
Right.
The acetyl, we're mostly in acetic anhydride, where, you know, the business is relatively stable. You know, the part that is in acid is pretty challenged. That's a very small part of our business. For our assets, we make acetic anhydride on purpose to make cellulosics. We don't make acetic acid on purpose-
Right.
except for the plant that we just sold.
Right.
-in Texas City. It's a co-product of when you make cellulosics, you get, you know, acetic acid that spins off the molecule-
Yep
... that you then recycle back into acetic anhydride and sell some of that excess acid. So we're not in that business, and that's the one that has more volatility to it. So we feel, you know, that the stability or instability is more of a olefin-driven issue, when we look at long-term, but it's also becoming a pretty smaller part of our portfolio and certainly has upside from this year going forward on spread.
Got it. Unless there are further questions from the audience, please join me in thanking Mark Costa.