Good day, everyone. And welcome to the Fourth Quarter Full Year 2020 Eastman Chemical Conference Call. Today’s conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Okay. Thank you, Cecelia. And good morning, everyone, and thank you for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Senior Vice President and CFO; and Jake LaRoe, Manager, Investor Relations. Yesterday after market closed, in addition to our fourth quarter and full year 2020 financial results news release and SEC 8-K filing, we posted slides and related prepared remarks in the Investors section of our website, www.eastman.com. Before we begin, I’ll cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our fourth quarter 2020 financial results news release, during this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2020 and the Form 10-K to be filed for full year 2020. Second, earnings referenced in this presentation exclude certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the fourth quarter and full year 2020 financial results news release, which can be found on our website. With that, I’ll turn the call over to Mark.

Good morning, and thanks, Greg. Before we answer your questions, I want to take a few minutes to make some comments. We’ve had a strong recovery in the fourth quarter and robust performance for the full year, despite the challenges associated with COVID-19. I’m incredibly proud of how Eastman employees around the world responded to these challenges and stepped up to help us deliver in 2020. And here are some of the highlights. Early in the year, we took quick and decisive action to adjust our operations, to keep employees safe and preserve our operational integrity. We shifted our financial forecast for prioritizing cash and liquidity, given the uncertainties, and we delivered another year of outstanding cash flow, our fourth consecutive year of cash flow greater than $1 billion. While we prioritized cash, our earnings performance was resilient, which is a testament to the tremendous investments we’ve made in our innovation portfolio and our overall business portfolio, over the last decade, including enhancing our market development and commercial capabilities. Additionally, we demonstrated we have diverse portfolio of businesses and end markets, which gives us this ability. As you know, we are committed to being a leader in the circular economy, we’ve accelerated progress, and it’s paying off with several wins across our portfolio, including Eastman being named as a Wall Street Journal Most Sustainably Managed Company of 2020. In addition, in our 2020 sustainability report, we committed to the ambitious goals of reducing our scope 1 and 2 greenhouse gas emissions by one-third by 2030, and achieving carbon neutrality by 2050. Looking forward to 2021, we entered this year with momentum from our record fourth quarter results. And we’re seeing clear signs of recovery across many of our markets, including strong orders in January. That said, visibility remains limited due…

Thank you, Mark. Cecelia, we are now ready for questions.

[Operator Instructions] We will now take our first question from Vincent Andrews from Morgan Stanley.

Thank you, and good morning, everyone. Mark, I’m wondering if you could just talk a little bit about the molecular recycling plant. I can’t pronounce, methyl, whatever it is. Just help us understand, it’s sounds like you’re saying this is going to be the world’s largest. But, what is the scalability of these in terms of how much larger could it be? Where are you in terms of customer demand in terms of filling it out? And in the script you talked a little bit about there being clear evidence of willingness to pay price premiums for renewable products? How are you going to be pricing this product? Maybe we could just start there.

Sure, Vincent. And it’s a methanolysis. So, it’s a technology that’s been around for a long time, Kodak developed it decades ago, to recycle actually polyester X-ray material. And then, they learned and saw the opportunity to take municipal waste and broaden the operating capability of this technology back then. And it’s something that I actually wanted to start in 2010. We actually had the plans on the -- and developing the engineering of it at that time, but the market wasn’t ready for it. We’re really excited because the market is very much ready for it now. Climate, circularity, sustainability is obviously becoming an incredible priority around the world. Even with COVID it’s just become stronger, not less. And so we think we’re in a great position to be a leader here. When you think about the technology and the opportunity that it has from a market point of view, it’s tremendous around a wide range, specialty plastic businesses from hydration to consumer durables, to electronics, ophthalmic et cetera. So, a wide range of markets, a lot of customers are very interested in this as they’re making aggressive commitments to improve their recycled content. And so, there’s just a lot of engagement. We have over 100 customer trials going on right now across a wide range of different applications. So, the ability to grow is there. We’ve already seen great success in launch with CamelBak and Nalgene where they put in our recycled content into our Tritan Renew, and you’ll see a lot more announcements as we go through this quarter. So, the demand is there. From a value point of view as we showed you on the chart, retail products are commanding a premium for recycled content and sustainability. PET, food-grade PET is trading at a substantially higher…

Thanks. And just as a follow-up, $600 million of revenue, is that just sort of assuming from this plant, or is that assuming additional capacity down the road?

Right. You asked about the scalability of this and additional plant. Sorry Vincent. So, to be clear, the $600 million in new business from innovation is for the total corporation of all of our products, not just methanolysis. When you think about methanolysis, we look at it as a standalone opportunity, both the polyester revenue, the polyester renewal technology and the carbon-neutral technology combined, we think is between a $500 million and a $1 billion revenue platform for the Company. Obviously, that doesn’t happen in one year. It takes years to build that out. But, a very substantial platform, frankly, the biggest platform after -- with Tritan before this and this would be the two biggest platforms that we have. And, that doesn’t include scalability. So, that’s building plans to serve the demand that we think we can make with our specialty products. We also think this is scalable in partnerships with other people around the world, who are very interested in recycled content for their needs, and are pursuing a business model around how we scale this into multiple plants around the world, focused on doing the methanolysis. It’s very scalable to build these plants and economic, and there is an advantage to having them in different regions. So, we think there’s a whole another vector of growth on top of this. But, it’s early days, so I don’t want to get ahead of ourselves on that.

All right. Well, thank you very much. Sounds very exciting.

We will now take our next question from Jeff Zekauskas from JP Morgan. Please go ahead.

Thanks very much. My first question is, you talked about $100 million cost penalty from lower utilization, but wasn’t the cost penalty $200 million? Why doesn’t $200 million come back in 2021?

So, Jeff, good morning. This is Willie. First, what we would highlight is, the $100 million that we’re highlighting as a tailwind is specifically related to the $300 million of inventory reduction actions that we took in 2020. And you can clearly see the impact of that in our cash flow. The other $100 million is we think about utilization versus volume mix, and you can combine those two together. So, fundamentally the lower utilization and volume mix net together with the other $100 million.

Okay. And in your methanolysis facility, why don’t you just buy methanol? Why do you have to make methanol?

Jeff, it’s not -- we’re not making methanol. So, I don’t know where they came up with the name of the technology. But, what you basically do is, you take polyester waste and you use methanol and a modest amount of energy to convert that waste or unzip the polyester basically back into its intermediates as DMT, and EG and other monomers and purify. So, it’s actually an input, not an output to the process to depolymerize, the molecule. So, that’s sort of how it works. And it’s far more energy efficient than the fossil fuel process. So, while it takes a bit of energy and methanol, it’s a lot less than sort of pulling oil out of the ground and all the steps to get it to being DMT and EG. So, we’re 20% to 30% better carbon footprint by doing this technology. And I think, that’s an important thing we want to emphasize is, any technologies we do around recycling, we believe there are two fundamental goals you have to meet at the same time. We have a plastic waste crisis, we need to address it, and we shouldn’t be wasting any of that carbon in the environment or letting it impact the environment. But, at the same time, we got to make sure our carbon footprint is better. Otherwise, we’re really not improving the overall environment. So, every technology we’re looking at has a better carbon footprint than the fossil fuel process. That’s true of methanolysis. Our CRT also, 20% to 50% better depending on the feedstock. So, we’re addressing both, our climate impact with process innovation as well as solving a waste crisis.

So, you’re buying the methanol, is that it?

Well, we make our own methanol and buy some methanol. It’s a mixed bag, as you know, from the broad portfolio of products we make.

Okay, great. Thank you.

We will now take our next question from John Roberts from UBS. Please go ahead.

Thank you. You talked about a 5% revenue headwind in chemical intermediates in 2021 from the changes that you made at the Singapore oxos facility. That seems really big. I didn’t realize that facility maybe was as big as it was, or is it a significant shutdown or closure you’ve done there?

Yes. Thanks, John. To your point, as we’ve made the decisions to, I’ll call it, cease the operations at our Singapore site, fundamentally, it was based on the raw material positions that we have at that facility in Singapore. And roughly, it is a world-scale equivalent of an oxo facility. It’s about a fifth the size of what we have in Longview, but still significant from a volume output. The key factor, as we think about 2021 and going forward is, overall, that will give us an opportunity to, I’ll call it, continue to debottleneck our facilities in Texas where we have a much better cost position. And from a fixed cost structure standpoint, we expect to improve earnings by about $25 million on a go-forward basis.

But, this is an action we want to take for a while. It’s not a profitable position to be with our cost structure that we had in Singapore, but we had to wait until the contracts expired to be able to shut it down on the supply side. And so, while the volume is going to be down, the earnings are going to be meaningfully up around $20 million, $25 million net-net by taking this action. So, we’ve always warned you that CI has a lot of volume volatility to it because of shutdowns or just planned maintenance shutdowns or this. It’s really dangerous to look at volumes in that section, you need to just focus on the earnings.

We will now take our next question from Matthew DeYoe from Bank of America. Please go ahead.

Can you just speak a little bit to the confidence in securing feedstock for the methanolysis plant? U.S. garbage infrastructure isn’t typically geared to moving product inland to Tennessee. So, how do you -- what’s your workaround there?

Sure. It’s a great question. It’s one of the strangest questions. When you think about the plastic waste crisis that I think everyone can agree needs to be addressed, and there’s so much of it out there. And yet, one of the biggest challenges for any of these investments is actually getting it delivered to your site, which is very confusing, but a true challenge and a question. So, we have a lot of partnerships we’ve developed to supply us with waste. And we have some very unique advantages around how we can handle waste. Because the combination of the PRT using polyester and the CRT being able to use mixed plastic of a wide spectrum as we sort of repurpose our gas fire to reform plastic at the same site. We can actually take a very mixed plastic stream that no one else really can manage because we can take this very low cost and more readily available mix plastic that doesn’t require much separation and do that separation very efficiently here in a unique process we’ve developed and feed that then separated streaming in these two assets. So, it allows us to access waste more readily and at a much lower cost because it’s lower value when it hasn’t been separated. So that’s one of the big pluses of the scale and integration that we benefit from here. Not to mention, our CapEx will be probably 10% less with some of the assets we used here. And so, I think that’s important and a real advantage. It still takes a lot of work, and we’ve been devoting the last 18 months in securing a wide range of sources. The other long-term interesting opportunity that’s going to come out of this, a lot of our customers, the big brands, both in textiles on the CRT as well as polyester on a variety of end markets, are very interested in a take back program, right? So, they want to truly have a circular loop where we go material to material. If they take back used products for them -- from their customers and can send it to us and then we can recycle it back into materials for their products. So, it’s a true absolute closed loop. And so, it will take a while for that to obviously develop. But, I think for a number of brands, it’s incredibly important. [Indiscernible] is a great example, where they’ve been doing this for a while and fully endorsing molecular recycling as the only way they can actually close the loop. And you’ll see some number of other customers making similar announcements.

So, it sounds like -- I mean, a lot of the press release talked about the PRT side of things, but it sounds like you were also going to do the carbonation kind of gasification of the fiber or the waste stream as well directly into the gasifier. Did I read that correct, or is it really just for PRT that you’re going to be pursuing?

No, no, we’re commercial in both now. So, we’re doing both now. We’ve just talked a lot about the CRT, which we call the carbon renewal technology. Basically, we’re changing our technology, if you will, from gasification to reforming when you go from sort of coal to waste plastic and replacing that coal with the waste plastic with a carbon footprint that’s sort of 20% to 50% lower. So, it’s a very compelling technology. That goes into our textiles, our Naia fabrics that we’re growing quite strongly as well as into some thermoplastics in the specialty plastics business and a new growth opportunity we see in AFP around fumed insulation that would be cellulosic-based and very sustainable offering versus EPA. So, a lot of different applications in CRT going on at the same level, that’s part of that $500 million to $1 billion platform combined with the PRT. So, a lot going on.

We will now take our next question from David Begleiter from Deutsche Bank. Please go ahead.

Mark, on the ‘21 guidance, could you walk through the earnings bridge from ‘20 to ‘21? That would be helpful.

Sure. And so, I’d start with, as we said, what is it that we can control. Our fixed costs, as we said, are going to be neutral in ‘21 relative to ‘20. So, we took $150 million out that were sort of temporary cost actions through last year. Many of those costs are coming back, especially on the operations. We’re running our plants incredibly hard as we’re trying to serve the demand that we’ve seen in the fourth quarter, and it’s increasing in January. So, that -- those costs are obviously coming back. But, there’s still a lot of other costs of efficiency and structural costs or travel with COVID that is not going to come back, certainly not in the first quarter, but we would expect to start coming back through the year. So, cost relatively flat on the fixed basis. As Willie just mentioned in a prior answer, you’ve got this $100 million utilization tailwind just at 2020 volumes without volumes being greater than last year. I mean, that’s about -- so put all that together, that’s $0.60 a share in just the sort of cost utilization side of things before you get the volume growth. And then, we’ve got volume growth in three categories. The first just being market recovery as we’re seeing in the fourth quarter and January. And so, that is we’re presuming is going to continue through the rest of this year as the economy continues to recover and that COVID’s not going to have some big negative impact. The second is innovation, creating our own growth, right? So, a lot of growth that we had last year wasn’t just what markets did, but how we created our own growth. We had phenomenal success in performance films in a very down auto market for…

Got it. And Willie, just on the free cash flow guidance, can you walk through some of the components there? I assume we’ll see a fairly big build in working capital in 2021.

Well, we’ve got a pretty simple bridge, David, for free cash flow, the 21 -- the 20. And actually, it doesn’t include a big build on the working capital front. As I think through this, let me start at a high level, which is we expect cash earnings that’s consistent with the 20% to 30% that Mark just walked you through. And also as business activity does pick up on the inventory front, we believe that we can offset that. And what I would highlight is, as part of our transformational efforts, we’re investing in advanced integrated business planning, processes to enable us to keep the DQO on the inventory side intact and maintain the gains that we’ve been able to accomplish. And also, we continue to have our programs in AR and accounts payable to offset and continue to make progress on that front. So, our base assumption is that working capital will be neutral in 2021, even in an economic environment that has momentum. On the capital front, we do expect in 2021 that CapEx will be $500 million to $525 million. So, at least $100 million to $125 million greater than prior year. And obviously, we expect to more than offset that with the cash earnings. So, all-in-all, we’ve I think developed a track record that demonstrates that we can maintain cash flows greater than $1 billion in basically about any environment. And our long-term focus is to continue to grow that and not just be at greater than $1 billion. But one, I’d also like to recognize how the Eastman team stepped up in 2020 to deliver that $1.1 billion of free cash flow. It took everyone and it took focus, and the team delivered.

We will now take our next question from Kevin McCarthy from Vertical Research Partners.

Mark, I heard the comments regarding volume growth. You talked about market recovery and innovation, and it sounds like mix is going to be important as well. But, is there a way you can help us better understand the level of volume growth that’s embedded in your EPS guidance, looks like in the pandemic year, went down 5%? How should we think about the high end and the low end, whether it’s an absolute level or relative to GDP or another macro metric? How would you have us process that?

Kevin, from a KG point of view, I think you would think about our volume recoveries being similar to GDP and then you get some leverage from mix. So, as you look at this, you’ve got a variety of markets that are sort of still recovering relative to ‘20 that are going to have volumes up in a meaningful way, like transportation or autos to be specific, not aviation, even though aviation will be better this year, but not by much. So, you’ve got markets like that that are recovering. Textiles, we expect a very strong recovery. And so, those will continue to drive value. And those are all very high value relative to corporate average when it comes to variable margins. And then, you’ve got other markets that are not going to grow as fast because they were really strong last year, like packaging and some hygiene applications and care chemicals. We still see them probably growing as opposed going backward, but not by much, given the strength they had last year. So, you can’t sort of trade all markets the same way, obviously, as we look at all these different parts of our portfolio. But, what’s nice is the stability you get from this, right? So, these resilient markets that we were in provided a great stabilizer to the headwinds we saw in automotive last year, where our volume mix, as you noted, was only down 5%, which was quite good for our industry and quite stable because of all these different resilient end markets. And now, this year, you’re going to sort of have the reverse of that of some of these high-value markets that were impacted last year are going to do much better. And these resilient markets are not going to be a big driver of growth. So, it’s hard to give you a specific number because a lot of it that’s driving the earnings is mix versus KGs. I don’t want to get into the breakdown of that.

Second question I had related to methanolysis. My understanding is that you can use different sorts of waste streams such as old PET bottle resin and maybe polyester from carpet and so on. And so, my question is what testing have you done already regarding the issue of variability of waste streams? And does it matter? In other words, if I’m unzipping it, as you say, into ethylene glycol and DMT, is it the case that the output is entirely fungible and the variability is a nonissue, or do you have to go through customer approval processes, et cetera, as you implement the new process?

Sure. So, let me sort of break this down into the operations part and then, as you just said, the customer qualification part. So, the technology methanolysis is a pretty robust technology. And methanolysis as a process is not exactly novel. But, when Kodak developed this process a long time ago, as I mentioned, when they switched from using a very consistent stream of polyester X-ray films to municipal waste, they discovered that it is challenging to manage a diverse waste stream that also can vary day-to-day, based on the mix of plastic you’re getting in there. And what’s great about this technology is it does not compete with mechanical recycling, right? So, mechanical recycling, where you can do it, is a better answer. It has a very low carbon footprint, but it’s restricted to only using very clean feedstock. And most of what they do very clean and clear feedstock from bottles is really what they can handle. And even then they have problems with limitations to some degree on performance and the polymer degrades over time. So, there’s a limitation to how long you can mechanically recycle plastic, period. So, molecular cycling like methanolysis is essential as a complement to mechanical with the feed -- with the raw material to plastic that they cannot use. It ends up in landfill and giving infinite life to plastic because we can constantly recycle this plastic with no degradation. So, the key, though, is you have to have a lot of operating experience on how to manage this process. And it’s not the methanolysis stuff that’s hard. It’s the purification stuff that you just got at, Kevin, that requires a lot of capability experience and a lot of trade secrets that we’ve developed over the years on how to do this to make sure that the intermediates that come out of the plant are purified and basically identical to the ones based on fossil fuel. So, when we get to making the polymer, the polymer is exactly the same. There is no profile or impurities that is an issue. And that’s what’s so great about customer qualification is that they don’t have to -- they have to wrap their head around that it’s the same, and that’s tough for them to buy into given the process. But, once we sort of walk them through the technical details, the great thing is they don’t have to change molds or process conditions or anything else. They can just suddenly have recyclable content in their product because it is literally identical. It has the same quality, same performance, won’t degrade over time in the recycle loop. So, that’s what’s so compelling about this technology is it really is a long-term infinite solution, much more similar to aluminum.

We will now take our next question from Mike Sison from Wells Fargo. Please go ahead.

Hey guys. Nice end of the year there. One quick follow-up on the methanolysis facility. Are you going to be able to brand it, like Tritan, meaning is there going to be a sort of a name or a labeling where a customer can sort of showcase that it’s used from recycling material, and if I wanted to go to Amazon or something and search for it, it would pop up?

Yes, you can. We’ve tried to keep our core product brand names and add a recycled name to it. So, Tritan Renew is actually the formal brand name, Mike. There will be Naia Renew in textiles and a series of other products. For cosmetic packaging, there’ll be Cristal Renew, et cetera. And those signify that there’s recycled content in it. Nalgene and CamelBak are marketing it that way already. So, you can go look at those products. But yes, no, I think it’s important that we get some sort of identification of it. Every customer is different. Some customers -- a lot of customers switch to our product and don’t declare what it is. So, it will be a mixed bag depending on how customers want to manage their marketing position on a shelf. We don’t mandate a certain approach.

Got it. And then, just in terms of Tritan overall, it does seem like the fundamental demand or growth rate for that business has gapped up over the last couple of years. Can you maybe give us a sense of what you think this business can grow over the next three to five years? And then when will you need to add some capacity to meet that growth?

Yes. So, Tritan has been a phenomenal success story over a decade now, right? It’s just a business that has continually delivered strong performance and growth in a wide range of applications. It started out with hydration, where we have these reusable water bottles replacing single-use plastics. So, one of the great things about our recycled content is it’s going into durable products predominantly. We got out of PET a long time ago. So, I’m not trying to defend the PET business. I’m actually taking single-use plastic, I’m taking carpet, I’m taking textiles, a very wide range of supply on the raw materials, and then turning them in to durable products predominantly. And so, it goes into a lot of consumer durable appliances, et cetera. We’re now going into toys in a variety of different applications. So, it’s positioned in a lot of markets that already care about being BPA free and products being safe. As one of our drivers, the performance is far superior to the competing plastics and its durability and resilience and how it holds up over time. And now, we got recycled content that we can add in it. That just gives us one more level of differentiation. So, we have a long runway of very attractive growth in this business. For when we need to add more capacity, we’re still a couple of years out. You have to remember that in ‘18, we added a significant chunk of capacity in Tritan that we’re certainly making progress in filling out, but we still have a few years before we have to add more capacity.

We will now take our next question from Frank Mitsch from Fermium Research. Please go ahead.

It always paves the way. Good morning folks. You called out the biggest source of upside for the fourth quarter came from transportation, ex aerospace. And obviously, you’re continuing to see some issues on the tire additive side. So, I was wondering if you could offer a little more granularity on how that played out for you with your various products, how it’s starting out this year, and what’s your expectations as we progress through ‘21?

You’re talking about automotive, just to be clear?

Correct, correct.

Yes. So automotive, which I’ll roll tires into as well, I mean, demand came back strongly across the automotive space, whether it’s our interlayers, performance films, logging in significant record earnings in the fourth quarter, or tires demand actually coming back quite strongly in the third and fourth quarter. So, demand’s come back across the board in that sector, as you can see from a lot of external reports. We’re advantaged that a lot of our products go into the luxury market, especially in advanced materials. So, we’ve benefited from that market frankly holding up a bit better last year than the overall market did and how that’s continuing to accelerate for us. And then, you’ve got accelerated growth with acoustics and heads-up display doing really well. Our new next-gen paint protection film and performance films doing incredibly well. A service channel strategy that allowed us to grow a lot of market share in China this year -- or I should say, in ‘20, I mean that’s going to continue to provide growth. So, it is a real combination of market and innovation and service model that’s driving a lot of that growth. And you know that the margins of these businesses are above segment average and above company average. So, you get a lot of mix lift when these things sort of come back. We’ve been saying that the volume and mix hit that we took in ‘19 relative to ‘18 and ‘20 versus ‘19 has a mirror image when it starts coming back, and you start to see that in the fourth quarter, and we’ll continue to see it now. I will note though that demand is exceptionally strong across the auto supply chain. And so, we are running into logistics constraints and capacity limits and serving all of it. So, we’re still happy to serve as much as we are. But, it’s a bit challenging out there on the logistics front right now for a lot of products.

Got you. Very helpful. And if I could ask about ASP, it was really interesting to read about the Retinyl Sunflowerate, and I was wondering where I could get some of that at some point. I know Greg uses it because he looks fantastic.

I certainly need to.

Where -- so you continue to call out a third of the business that’s challenged. Where do you stand on the strategic review? And what your -- what do you think your ability is to execute something in ‘21?

Thanks for the question, Frank. First, I’d say that the pandemic has accelerated some of the issues that we’re facing in the one-third, particularly as we highlighted in the first half of the year in tire additives. Also, I’d say the environment has made it more challenging to, I’ll call it, complete some of the alternatives that we’re considering for the businesses. But we’re committed to addressing the performance. We’ve announced that we’re shutting down one of the tire additives facilities. And you can expect us to continue to look at the footprint of tire additives, adhesives and also the contract structures within those businesses. And considering the types of actions that make sense, it could also include joint ventures and divestitures that we’ve highlighted in addition to just transforming within the Eastman portfolio. We continue to work on reducing the cost without sacrificing also some of the innovation. We continue to make progress in the transition to, I’ll call it, the Crystex Cure Pro next generation. And we’re also very active here on all the options as we start 2021, and we’ll update you when we make progress on that.

We will now take our next question from Bob Koort from Goldman Sachs. Please go ahead.

Mark, I was hoping you could answer a question I get and fumble when my clients ask me, and that is, what does the trends in propylene and refinery grade propylene mean to your business from a profit or advantage or disadvantage standpoint relative to your competition?

So, Bob, from what we see, demand is strong across many of the end markets. And I think also you’re probably referencing what we’ve seen here in the near term of propylene, I’ll call it, surging and increasing, I think it was roughly $0.12. Fundamentally, we’re happy to have propylene rising with -- driven by demand in some of the outages. Refineries are running at lower rates, and it’s unclear how long this is going to last. Also, some of the feedstocks have risen. But, spreads have moved back to more normal levels, but they’re not fully back to 2018 types of levels. Also, as we said in the past, we’re not in the olefins forecasting business. But again, the spreads that we’ve seen with our transition to RGP and PGP, those margins are very strong right now as well. The big spikes can be tricky for our chemical intermediates business to manage, but they’re reacting quickly to those market dynamics. And again, we see upside, at least in the olefin and derivative margins, compared to 2020.

So, Willie, is the cliff notes then that if the raw material inflation is demand-based, then you’re okay with that because it allows you to pass it through and more easily?

Yes, that’s correct, Bob.

Got it. And then, Mark, I’m sure it’s refreshing to not have to talk about olefins and those things and talk about next-generation technology. Is there any way -- I mean, look at the number of questions on the call about it. Is there any way to ring fence it and then put it into a SPAC at a sales multiple that drives your earnings multiples, conceptually, could you do it?

We can just change our name to game stop. Not really, Bob. I mean, I think there’s -- I think what we’re doing is dramatically changing the portfolio of this company to -- I know it’s a trend that everyone’s saying this right now, but genuinely be more of an ESG play. When you look at -- for the last decade, we’ve been launching a wide range of products that are sustainable and much better for the environment across our portfolio. And now, you add on the circular economy and what we can do and how we could scale this up through partnerships. I think, we can really pivot the nature of who we are and the significant improvements we can make in our carbon footprint and drive towards that 30% reduction in 2030 is a huge change in our footprint, not to mention where we want to all get by 2050. So, I think we are really repositioning the Company in a pretty significant way. But the whole value of what we can do that’s so unique and so powerful in the circular economy is leveraging our integration of our site here in Tennessee. We’ve talked a lot about scale and integration being a huge competitive advantage for us. And a lot of people have thought about that being cost. I’ve always thought about that being about enabling innovation and growth. And here’s another example where this vastly interconnected and complicated infrastructure that we have here is going to be key to differentiating us and doing something that very few other people can do at our economic efficiency. I mean, we can definitely do methanolysis around the world, but the way we can do it here is going to be uniquely advantaged relative to a standalone plant. Both are attractive. This is just really attractive, and the other ones are still going to be more attractive than the 15% ROIC. So no isolating it off in a SPAC, but feel free to buy Eastman as a great environmental play.

Touché. Thank you.

Our next question is from Aleksey Yefremov from KeyBanc. Please go ahead.

Thank you. Good morning, everyone. Mark, if you’re investing about $250 million of capital in this methanolysis project, your ROIC is about 15%, so let’s say, 20% for the sake of the argument. So, does this mean this project could contribute somewhere north of $50 million of after-tax cash flow? Is this a fair math?

No. Alex, this is Willie. And yes, your math is correct at the 20% level. So, to your point, we’re focused on...

Yes. I would emphasize the ROIC in this one is unique compared to normal specialty investments because we can load the plant so fast. So the payback period is a lot faster for us in this one compared to normal where you’re filling out a Tritan plan over time. Because we can baseload it with PET because we do still have some PET assets left that are dual purpose with our specialty plastics. And so, that gives us a lot of leverage in how we gain returns on the economics.

So, 20% is not necessarily the limit here, is…

Well, we don’t want to get into details. But, let’s just leave it at that it’s a very attractive investment.

And just as a follow-up, you’re talking about using 250 million pounds of plastic waste by 2025, 500 million pounds by 2030. Should we think about this as a lower limit for growth that you’re thinking about this business, or is it most likely scenario, or is this the upper limit? How high can it go within the next four years to nine years? And just a second part to this question, you were talking about $500 million to $1 billion in sales. Does this correspond to these two numbers, 250 million and 500 million?

Yes. So, those are interconnected. So, the type of waste plastic we’re talking about getting to, if you think about the first methanolysis plant and what we think we’re going to do with the CRT, that is what drives us towards that platform, revenue value of the $500 million to $1 billion. If we partner with companies around the world to do additional plans, that would be additive to those numbers. And, as far as fill out rate goes, it’s a little hard to say. We’re highly confident we can sell at the plant in a mix of specialties and packaging. But, the rate at which we can upgrade into the specialties -- we’re seeing huge customer engagement right now. So, we’re really excited. But, we still have a lot of work to do. I mean, the great thing, by the way, is we are using a sort of a high-cost approach to using our existing assets to make recycle content today, right? That’s why we’re commercial with CamelBak, Nalgene is we do have alternate process that we’re currently using. But, it’s more expensive and it’s limited capacity. So, it’s a way to, if you will, have a semi works to build market momentum adoption that allows us to really hit the ground running when methanolysis comes in line to lower our cost and significantly add our capacity. And the CRT, of course, is already being repurposed. It’s a very low CapEx way to switch over to reforming plastic. So, that we just continue to scale up. We got delayed in our progress with our collapse in the textiles market. So, we just need to catch up now.

We will now take our next question from P.J. Juvekar from Citi. Please go ahead.

It’s Eric Petrie on for P.J. You noted the methanolysis plant has capacity of 150,000 to 200,000 tons of polymer per year. I’m assuming most of that will go into Tritan. So, at the fill out point, how much of your Tritan will be renewed versus traditional produce-based?

First of all, it’s not all Tritan. So, Tritan, I think, will be one of the big success stories, but it’s not limited to that. So, we have a lot of copolyesters that go into cosmetic packaging, for example, that has a significant amount of value for that space who are very forward-leaning on the sustainability front, who are very interested in adopting recycled content. So, it’s across that. There’s even some shrink packaging that we may do. And so, there’s a wide range of products in markets, but it will be a good portion of the Tritan mix, but we’re not going to call out a percentage right now.

Okay. And then, secondly, how did volumes for your specialty products grow in fourth quarter? And what was the comp for full year ‘20? Typically, those end markets grow 2 times underlying.

Yes. So, the whole 2 times math gets a little confusing in a COVID crisis on how to actually measure it. But, what we -- we’ve seen -- you’ve seen tremendous growth and progress and success in the Advanced Materials division. And that’s all the specialty products delivering that growth when you look at that volume and mix improvement. When you look at AFP, it’s really important to sort of separate out the two-thirds versus the one-third. Obviously, the two-thirds is a lot more stable, margins well above the segment average. And even with the aviation headwind of $30 million this year, we think earnings for the two-thirds will get back to and be slightly better than 2019. And so, that business -- coatings is demonstrating a lot of strong growth in market recovery. Care chemicals, water treatment, very strong. Our heat transfer fluid business has been very strong. So, we got a lot of great businesses doing well there. And that comment, by the way, both on earnings and strong growth goes back to ‘18. So, the stability of that segment and the margins are actually quite good, offset, of course, by what we’ve identified in the tires and adhesives where we’re taking some actions. But, overall, the portfolio on the volume side is actually holding up quite well.

We will now take a question from Arun Viswanathan from RBC Capital.

Congratulations on all the progress. I’m just curious, Mark, you guys laid out an 8% to 12% EPS growth rate in the past. I know that ‘21, obviously, is going to be much above that because of the recovery. But, when you look long term and you add in the methanolysis gains, do you see a path to returning to that level structurally longer term or maybe even eclipsing that?

Well, right now, we’re still focused on recovery and getting back to ‘18 levels, which I do think is a pathway we can see after we get through this year. I think we’re already on a strong track with what we’ve guided for this year. When you think about post recovery, let’s say, and I’m not going to try and predict when that is with COVID, we very much would expect to get back to that growth math that we described on at Innovation Day of that 8% to 12%. Obviously, circular economy helps that and drives growth. Obviously, we’ve had things that haven’t worked out as well as we had hoped like, tires and adhesive. So you got to sort of do all that net math, which we’re not doing at this stage. But we definitely see the set of activities, the great things that are happening in many parts of the portfolio, a few things that didn’t work out as we had hoped, allows us to still get back to ‘18 and grow from there with that math.

And then, could you just remind us on the capital allocation side, when you expect to kind of maybe pivot more towards buybacks, if at all?

Yes. So, as we think about capital allocation for ‘21, first and foremost, obviously, we grew our dividend for the 11th year in a row and expect to allocate about $375 million there. Also, we’ve got some debt coming due in Q4, and we would expect currently to pay that debt down, so, $300 million of debt reduction. And then also looking through with the remaining cash from a strategic standpoint, we would expect to allocate roughly $350 million between bolt-ons and share repurchases. Obviously, we’re going to be, I’ll call it, cautious offsetting dilution here in the front half, and we’ll see how the economy continues to pick up.

And just to sort of wrap things up, one last thing I wanted to say was, I have a deep appreciation to my employees and our leaders throughout the world. The success we had in getting through ‘20 in a very stable manner compared to many in the industry and to emerge and grow like we intend to do this year is a testament to all the investments we’ve made in our capabilities. I mean, we’ve made a lot of investment in commercial capabilities, a lot of investments in improving our operational cost structure. We’ve obviously dramatically changed our portfolio and improved its quality and depth of innovation and ability to create its own growth compared to the last recession we faced in 2009-2010. And we’re seeing the payoff of that in the stability we delivered last year and the strong free cash flow and actually quite good earnings, especially if you back out the $100 million of additional inventory actions, and feel great about how we’re positioned for this year. And so none of that would have happened without the dedication and effort even in the extreme situation of how we had to work in COVID to deliver this. So, thank you to all of my employees.

And with that, we’re going to say thank you very much for joining us this morning. And if you have questions, you can reach us through the day. Everybody, have a great day.

Thank you. That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.