So this is a new first time 100,000 ton plant that we’re building. The plants that we’re going to build in France and the second one in the US are basically the same plant we built here with some sort of modest improvements. So, we’re not going into this without already knowing what the capital cost is for the methanol system unit. And the polymer lines are built all the time, well established to understand what those capital costs are going to be. Infrastructure is also pretty straightforward that surround the plant. So we feel good that we can come up with a high quality estimate for the next two projects and we can manage the construction process far better than what happened in Kingsport. And so, we’re still working those numbers. They’re still in line with what we expected to deliver a 12% return or greater for the France and the second US plant.
Remember, the first plant here is greater than 15%, even with the higher capital costs. So we feel good about sort of where we are on the capital side of this. And of course, we’re pursuing these additional incentives for both projects as I discussed earlier and obviously if we get those, that’s going to help manage capital risk, as well as improved returns.
Aleksey Yefremov: Thanks, Mark. And you’ve pre-processed a fair amount of materials for the Kingsport plan. Any lessons so far versus your initial expectations in terms of how this front-end technology works and what the costs are?
Mark Costa: So far the processing has gone well. I mean, there’s always hiccups. It’s a proprietary new process that we developed that takes a lot of steps out of the sortation compared to a mechanical recycler. So we’re excited about taking that approach. Chemical recycling allows you to do that because you’re not needing perfect, clear material to sell back to the market, as the big pile suggests in the video. But the process is up and running and working well at this stage. And we feel good about how that’s going to work. Our overall cost when we think about sourcing material and processing it into the front of the plant is a little bit better than we expected. So we’re feeling really good on the feedstock side here. Feel great about having 70% of the feedstock already in long-term contracts in France as well.
So I know feedstock was a big question in the beginning of this whole process as a risk. We’ve actually managed that one reasonably well. Customers are going well. Now the final step is starting up the technology, improving its economics and its effectiveness as sort of the final big milestone in front of us here over the next two months. So we’re really excited to sort of chuck all those boxes, keep going forward with this plan, use it to help improve earnings next year in a difficult environment, and get these next two projects underway and create a lot of value for our owners.
Aleksey Yefremov: Thanks. Makes sense.
Unidentified Company Representative: Let’s make the next question the last one, please.
Operator: Thank you. Our next question — our final question comes from Duffy Fischer of Goldman Sachs. Duffy, the line is yours.
Duffy Fischer: Yes, good morning guys. If we could, let’s stay on methanolysis. If we assume we’re kind of at the run rate of our $450 million EBITDA from the three plants, how volatile would that $450 million be over a typical, let’s say, seven-year cycle? And then talk about the volatility you may see on the pricing side and the volatility you may see on the feedstock side over that seven-year cycle?
Mark Costa: That is a great question, Duffy, and one that’s been a big focus for us. As we told you from the beginning, the approach we’re taking with this plant is to be more of an industrial gas type project in how we deliver very stable margins and attractive margins when you look at the economics for these projects. So on the PET side, we’re doing contracts that pass through the changes in feedstock and energy costs, delivering stable margins for us. We have no intention of getting back into the merchant PET market going forward. And if we don’t get those contracts, as we’ve said, we won’t build the plants, but we’re getting the contracts and we’re feeling good about it. So those margins will be stable in the PET side. On the specialty side, we have demonstrated great pricing power around our specialty products and managing the price to variable cost ratio really well and keeping those ratios stable.
From a demand point of view, what I’d say is, the PET market, the packaging market is a lot more stable than some of the other more discretionary markets. So, we think that will actually add stability from these projects as well as to the company portfolio. The other thing I’d note is, it’s a regional business, right? So when you’re taking packaging waste out of the environment, the brands and even more so the regulators want to solve the local packaging waste issue in Europe or the US. So they want that waste taken back into polymer and then provided back into the packaging and create a closed loop in food grade where fossil fuel based PWT is no longer used. So this disconnects us from China. We’re not trying to solve China’s waste problem in the US or Europe.
We’re trying to solve the European and US waste problems. And so, it becomes more of a regional business. The brands will have to be really careful about making sure they’re focused on solving the local impact to protect their brand equity, the regulators are writing policy, especially in Europe, it’s already written that the polymer has to be made from packaging placed on the European market. So, that regional aspect of this business has been a core reason we’ve been interested and excited about making these investments. So it’s not perfect. You still have macroeconomic demand uncertainty, but it’s going to be very stable EBITDA.
Duffy Fischer: Great. And then just one technical question about your acetic acid sale. Did you sell the technology for acetic to them as well or if you chose to you could build a plant or you could do something like that [SIPCHEM] (ph) licensing deal that you did before where you actually kept the technology.
William McLain: Duffy, the sale of the Texas City facility is — that is not part of what the strategic focus for Eastman. As Mark has highlighted, we’re about anhydride and anhydride derivatives and cellulosics. So the key thing here is, this is great for INEOS Acetyls business and for Eastman as we go forward with our focus on circular in a circular economy.
Mark Costa: It has no effect on our rights to use our technology or license our technology.
Duffy Fischer: Great. Thank you guys.
Mark Costa: Thank you, Duffy.
Unidentified Company Representative: Okay, everyone. Thanks very much for joining us today. We appreciate that and hope that you have a great rest of your day and a great weekend.
Operator: Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect.
