Interview: Orion to focus on "high value-added" products

Kingwood, Texas – 2016 was a very good year for Orion Engineered Carbons LLC, setting the company on a path in 2017 toward establishing its long-term goals, according to Jose A. Briones, Orion North American marketing manager for rubber.

These goals for 2017, according to Briones, include: Continuing Orion's growth in speciality and technical rubber carbon black grades; expanding the speciality and technical rubber grade mix at the recently acquired Orion Engineered Carbon Qingdao in China; maintaining speciality product supply ahead of demand; and executing strategies to shift capacity to higher-value-added products.

Integrating operations in China, with improvements in sales and product mix, was probably the most significant achievement for Orion in 2016, according to Briones.

"We had production in Asia before this, but not in China," he said. "China is one of the largest carbon black markets in the world, if not the largest."

Orion's strategy in China was very much part of its focus on speciality products, according to Briones.

"We have a very strong emphasis on shifting our portfolio to speciality products," he said.

Strengthening its speciality products portfolio also was behind the company's decision to close an unprofitable plant in France and to consolidate its South Korean operations into its Yeosu facility by mid-2018.

"Our company works continuously toward increasing the efficiency of our operations," he said. "Increasing productivity and efficiency is something we do every day."

Briones said he expects Orion to continue on a profitable path of expansion in the speciality product sector.

"I am an optimist," he said. "When I speak to our salespeople, I tell them there is no such thing as a straight commodity market."

Briones said as long as the firm understands its markets and its customers' needs, Orion will continue to innovate and sell no matter what the market is.

Carbon black market

Orion carefully and constantly monitors carbon black markets to assess total demand, according to Briones.

"It tells us the total aggregate demand, which allows us to prepare our strategy," he said.

The carbon black industry is looking at robust future growth, according to a recent report from Smithers Rapra. Smithers projects the industry's compound annual growth rate at 3.74% for the next five years.

Automotive trends affect both tires and mechanical rubber goods, according to Orion. The auto industry is the biggest end user of MRGs, and that demand has a direct impact on demand for carbon black, it said.

US light vehicle sales in March 2017 were softer than expected, according to Orion. The pattern of consumers abandoning sedans in favour of light trucks, SUVs and crossovers continued, with light truck deliveries increasing 5.4% and car sales falling 11%, it said.

Heavy truck orders also are sagging because of lackluster US retail sales and industrial output, it said.

Knowing the shifting demand for vehicles is important for Orion in determining its product portfolio, because each sub-segment of the vehicle market has specific requirements for seals and other MRGs, according to Briones.

Location of vehicle production also is an important factor for Orion, the company said. And for North America, Mexico is the place to be, it said.

Quoting sources including IHS Markit, Global Trade Magazine and the Organisation Internationale des Constructeurs d'Automobiles, Orion said that Mexico made 3.6 million vehicles in 2015, three-quarters of which were exported.

Mexico exported $47.3 billion (€43 billion) worth of vehicles and $51.6 billion worth of parts in the first 11 months of 2016, according to Orion. Vehicle production is expected to grow 31% in Mexico between 2016 and 2023, it said.

Just as important as burgeoning vehicle production in Mexico is the establishment of European and Asian engineering standards there, according to Briones. European and Asian standards are more stringent than those in the US, which make highly engineered carbon blacks a necessity, he said.

Orion HS25, a carbon black designed for European and Asian manufacturers, is a good case in point, according to Briones.

"We don't make it in North America yet," he said. "But we will."

It is too soon to determine the effect of President Trump's trade policies, including the proposed 20% Border Adjustment Tax on imported goods, Briones said. But he doubted they would have much effect on Mexican production even if enacted.

"You would need a 50 percent BAT for the market to change, and I sincerely doubt that will happen," he said.

NDM testing

Orion has used non-dispersible matter testing to quantify the quality of rubber carbon blacks in Europe for the last two or three years, according to Briones.

"European standards are a little more stringent than US standards, but those standards are now starting to be transferred to the US," he said.

"By using these tests, we can prove the use of our carbon blacks can reduce defects," he said.

According to Orion, NDM testing is a more reliable method than the standard sieve residue test to prevent surface defects in high-end MRG extrudates.

NDM test methods are described in ASTM D7724, "Standard Test Method for Carbon Black—Non-Dispersible Matter by Mechanical Flushing." The test methods were established in 2011 and are now considered an industry standard, Orion said.