Continental Carbon fights challenges in N.A.

By Brad Dawson

Houston, Texas-Carbon black producer Continental Carbon Co., like its competitors and most players along the rubber-industry supply chain, is facing a number of challenges in trying to operate profitably, particularly in North America.

Excess capacity, ever-rising feedstock prices, pressure on margins and working with customers in a highly competitive environment are all problems companies like Continental Carbon are dealing with today. In addition, the Houston-based supplier has been fighting an emissions lawsuit for the last few years, a case in which it feels it and the carbon black industry was portrayed unfairly.

Company President Kim Pan said the carbon black business on a global level has been good for Continental Carbon and its parent, Taiwan-based China Synthetic Rubber Corp. Demand outside North America, in core or growing regions such as Taiwan, China and India, has outpaced supply and there's speculation that situation will remain the same over the next six months to two years, Pan said.

Continental Carbon India Ltd., based in Ghaziabad, for example, has been a growing venture for the company since it was purchased in 2000. The plant is ISO 9002-certified, has an annual capacity of about 65 000 metric tons-following three expansions over recent years-and has increased output by more than 40 percent, Pan said.

The decision to go to India wasn't an easy one, said Pan, who's been with Continental Carbon for 13 years. The company's board of directors had to be convinced to buy the facility there from Oriental Carbon & Chemicals Ltd., and the process took several years. But now Continental Carbon believes it is fortunate to be a part of such a progressive market, he said.

The company also has committed to building a greenfield plant on the east coast of India on a 100-acre parcel that will manufacture 150 000 tons of product per year, marketed domestically and to customers in the Far East and possibly in Europe, Pan said. The date of that facility's opening is to be determined.

Challenges in North America

In North America, however-where the company has three production facilities-demand has been flat or down the last couple of years, influenced in great degree by the tyre business, he said. Overcapacity and escalating oil and gas costs have been a challenge for the entire industry, and while the company-like many suppliers-has been able to pass along some of those high costs to customers, it's very difficult because the tyre companies have their own set of challenges to face.

If demand isn't there, the company may have to reduce capacity at its US plants, but it's a painful thing for everyone involved and he'd like to avoid it, Pan said.

“We recognise it's a very competitive environment in North America, a tough economic landscape,” he said. “We have to find the best ways to address it.”

Introducing more innovative products, being diverse geographically, streamlining operations, improving energy efficiency and keeping communication open with all stakeholders are among the avenues Continental Carbon is taking to improve its bottom line in North America, according to Pan. The company needs to have dialogue with key customers often, particularly in a volatile market, he said.

“We want to grow with them,” Pan said, adding that good communication among all stakeholders-the board of directors, bankers, customers, suppliers, shareholders and employees included-will improve the company's operation.

It's also a challenge to find the best people, and unfortunately the chemical industry doesn't do a great job of promoting itself, Pan said. The result may be a business sector people take for granted.

“I don't think we tell the story of how valuable our products are or educate the public on what we provide,” he said. “It's a good story, but we need to do a better job telling it.”

Pan said he realises that, say, an engineer his company has its eye on is going to have other viable choices, but the opportunities Continental Carbon and similar firms can provide are challenging and worthwhile.

For example, Continental Carbon does more than provide carbon black for the tyre industry, he said, and is making a real effort to expand its carbon chemical and material offerings. “That's where our core competencies are,” he said. “It's something we can really key on.”

“It's a tough assignment right now, to sell our industry,” he said. “But there are talented people out there and we can work harder to attract them.”

Aftermath of a lawsuit

Continental Carbon's fight over an emissions lawsuit filed back in 2001 hasn't helped the carbon black sector's image. The final outcome-the US Supreme Court in June declined to hear the company's appeal-left the firm disappointed, Pan said.

An Alabama federal jury in 2004 awarded $20.7 million in damages and fees to plaintiffs claiming that carbon black emissions from Continental Carbon's Phenix City, Alabama, facility damaged property in a nearby community.

The judgment included $17.5 million in punitive damages, which the company believed was excessive. The punitive amount was one of the main factors in its subsequent appeals.

The firm's legal system experience also left it with a bad taste in its mouth. “The system isn't as it's portrayed on TV,” Pan said. “Justice doesn't always prevail.”

Continental Carbon learned that evidence and data don't matter much, he said, and what he considers “frivolous” lawsuits create a frenzy for plaintiffs and their attorneys looking for easy money.

“It sets a dangerous precedent for a business like ours,” Pan said. “If someone has a shred of evidence, even circumstantial evidence, it's easy to pursue a lawsuit. There's no downside for them; it's a lottery mentality, and all they have to do is hit on one of them to collect. It can happen to any company.”

Continental Carbon has learned that litigation has its costs, and it has to recognise it as a threat to its business. That means being even more conscientious and responsible when it comes to compliance, Pan said.

Perhaps the most frustrating thing for Continental Carbon has been its portrayal as a foreign company somehow trying to pollute the environment in the US, he said.

“We're here creating jobs in this country, not leaving like some companies are,” he said. “We want to compete here and grow here. We think it's unfair.”

Safety of employees and the community is a priority, and no one-as far as he is aware of-has been diagnosed with cancer because of carbon black, Pan said. The industry also pays well, with wage and benefit packages for bargaining unit employees exceeding the $60 000 level, he said.

Information that portrays his company and the industry otherwise bothers him, Pan said.

“We have a good compensation structure here and we comply with regulations, but it's very competitive,” Pan said. “We want to stay in the US, and we know much of the success we have abroad is because we're here. It's still the largest market in the world.”

Working toward goals

For the foreseeable future, Continental Carbon wants to work on running a sustainable business, growing profitably and meeting the many challenges in front of it, Pan said. The company will compete as best as it can and strive to reach operating profit levels that allow it to substantially reinvest in the business, he said.

“We're not there yet,” Pan added.

Pan is eyeing a 15-percent operating profit percentage for the future to aid its research and product development efforts and allow the company to grow at a consistent level. The firm wants to be in all the regions its customers are and to be the preferred supplier to its key customers, he said.

He also credited the firm's stakeholders for their patience with Continental Carbon's progress.

“We've had a long-term view of things, and we're grateful our stakeholders have, too,” Pan said. “The investments we make into new products and markets will be long-lasting. We have the commitment. Now it's a matter of execution.”

From Rubber & Plastics News (A Crain publication)