JP Morgan Sees Headwind For Eastman Chemical In Lower Oil Prices

Eastman Chemical Company's EMN lower costs for propane won't offset the lower prices it gets for petrochemicals in light of oil's steep decline, an analyst said Friday.

JP Morgan's Jeffrey J. Zekauskas downgraded the company to Neutral, from Overweight.

Many of Eastman's products are manufactured from two primary raw materials--propane and ethane, referred to as feedstock.

Propane is now $0.63 per gallon, down from $1 during the summer, and ethane is now at $0.15 per gallon, down from $0.23 , Zekauskas said.

Those lower prices "are providing some offset" to the negative price effects of petrochemicals and petrochemical derivatives, Zekauskas said.

"But it may be the case that Eastman will not benefit from some raw material offsets" that some of its competitors are experiencing, Zekauskas added.

Eastman's Chief Executive Officer Mark J. Costa said if Brent oil trades at $85 a barrel, "I would say that the impact to us is roughly around $0.25 in EPS as a potential headwind" in 2015.

Analysts, on average, expect the company to earn $7.67 a share in 2015.

Costa, who made the comment in a conference call with analysts October 31, said the estimate assumes that demand is unchanged.

"If you believe that the world's going to be stimulated by $85 oil and we'll get growth out of it, then we'll offset some of that $0.25. So overall, it's not material," Costa said.

Brent crude traded near $69 a barrel on Friday, and a recent analysts poll suggests Brent will average $82.50 a barrel in 2015, according to Reuters.