Purchases, expansions leave carbon black producers vying for top spot

By Mike McNulty, Crain Staff (R&PN)

Akron, Ohio-The turbulent rumblings in the carbon black industry have slowed considerably from the levels of 2010 and early 2011.

But not entirely. Key players in the industry now are in expansion modes.

Rampant rumours, speculation and maneuvering on potential acquisitions ended when Marietta, Georgia-based Columbian Chemicals Co. was purchased by Aditya Birla Group of India in late June, and Evonik Industries A.G. sold its carbon black business, now called Orion Engineered Carbons, to New York-headquartered Rhone Capital L.L.C. and Jersey, England-based Triton Advisors Ltd. in August.

Basically the top four ranked carbon black companies at the time felt the most impact from the two deals. When fourth-ranked Birla bought Columbian, positioned third, the combined company vaulted to the second or first slot in the global carbon black standings.

Orion, ranked second at the time, slipped to third, while Cabot Corp., the long-time holder of the top position, found itself either barely ahead of the Birla Group, slightly behind it or virtually tied with the Indian conglomerate, depending on the figures being used.

Birla, owned by Indian billionaire Kumar Mangalam Birla, had to outbid several rivals, including Phillips Carbon Black Ltd., also headquartered in India, to snare Columbian. Birla and Phillips were considered strong candidates to buy Evonik's carbon black business but both pulled out in the final bid stage.

Dramatic change

The industry hadn't changed much in the last 20 years, according to Paul Ita, an analyst with Amherst, Mass-based Notch Consulting Group, which covers the carbon black and rubber chemicals industries. But it certainly did when the two acquisitions were completed earlier this year, he said.

“If you look at the basic structure of the carbon black industry dating back to the 1980s, you see it hadn't changed radically,” he said. “That changed dramatically when the two latest acquisitions took place.”

Columbian and Evonik sat on the selling block for several months in 2010 and early 2011 as potential suitors poked and prodded the two businesses and speculation on potential deals sprang up weekly.

Columbian, which accounts for about 9 percent of carbon black production globally, was sold to the Birla Group for almost $900 million, while Rhone and Triton paid Evonik $1.2 billion for Orion, the onetime Degussa carbon black business.

Because Orion was acquired by capital investment firms rather than a carbon black manufacturer, “the sale has no effect on its market share,” Ita said.

However, the addition of Columbian catapults Birla up toward the top spot in the rankings, doubled the company's production capacity to 2 million metric tons, extended its geographic footprint to 12 countries and gave it 17 manufacturing facilities, six of its own and 11 operated by Columbian.

Ita said Cabot and Birla/Columbian now are virtually tied at the top of the carbon black rankings. “Either legitimately has a claim to that position.” Cabot has higher sales figures while Birla has greater volume with Columbian in the fold.

In the wake of the acquisitions, Orion occupies the third spot and China Synthetic Rubber Corp., which owns Continental Carbon, moves from fifth to fourth in the rankings, he said.

Several national or regional carbon black firms make up the remainder of the top 10 list, including Texas-based Sid Richardson Carbon & Energy Co. in the US, Jiangxi Black Cat Carbon Black Co. in China, Tokai Carbon Co. Ltd. in Japan and Phillips in India.

According to data provided by Notch Consulting, prior to the recent acquisitions the top three players controlled about 31 percent of global carbon black capacity; following the two transactions, the top three control 37 percent of global capacity.

A spokesman for Cabot maintained that the company clearly remains the carbon black leader across the globe. And the firm is getting bigger, he said.

Earlier this year, Cabot began launching expansion projects, all of which will be complete in the next two years, that certainly will boost its capacity and its presence in some of the fastest growing global markets. Cost of the projects, which are expected to increase its capacity by more than 300,000 metric tons, is in the $180 million range.

The Birla Group reportedly is considering or ready to begin at least one expansion. The company did not confirm that, however.

CSRC said it was spending about $330 million to build a carbon black factory in India. The first stage of the project is expected to be complete in two years. It did not release capacity figures.

Phillips also is in a major expansion phase with the construction of a factory in Vietnam. Capacity of the site was estimated to be in the 110,000 ton range.

A company official said the facility should be on line in 2013 and the firm's goal is to move from eighth slot in the rankings to the sixth position.

It is unlikely carbon black makers are considering any additions in the US and Europe in the near future, Ita said. But there may be some debottlenecking of existing facilities over the next year.

“Birla has always targeted higher growth markets,” he said. “The acquisition gives them a big jump on the speciality carbon black side, outside of the tyre industry, which is a smart move” because it expands the firm's product mix.

The acquisition of Columbian certainly changes the way Aditya Birla is viewed in the industry. The company had been an upstart for the last 10 or 15 years, Ita said. “Now they have become a dominant player across the board in the industry.”

Looking ahead, he said the outlook for the carbon black industry in North America, and the US in particular, had been dire just two years ago. But in 2010 it started growing again and it's continuing to rise, although slower in North America than it is globally.

Presently, forecasts call for carbon black volumes and use to climb just under 2 percent between 2010 and 2015 in North America and 4.5 percent worldwide from 2010 to 2015, Ita said.

Capacity utilisation outside China was around 90 percent as of the first quarter of 2011, he said, “which is very close to effective capacity.”

From Rubber & Plastics News (A Crain publication)